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Lloyds caps mortgage lending

LLoyds has announced it will introduce a lending cap amid fears that the UK housing market may be out of control.The bank has introduced a ban on all mortgages above £500,000 unless the mortgage offer is less than four times the household’s income. It is designed to address issues that are specific to the London property market.Stephen Noakes, group director of mortgages at Lloyds, said outside the capital the housing market is enjoying a fragile recovery and it is important to avoid disrupting this."But in London, house prices are almost now 30 per cent above the 2007 peak. This is largely driven by issues of supply which are particularly acute in London and this is having an impact on income multiples which are failing to keep pace with asset growth," he added.Lloyds said it anticipates the policy change will affect around eight per cent of its lending in London. Some analysts believe other lenders will follow suit and introduce caps on their lending.It also applies to mortgage lending through Halifax, Bank of Scotland and Scottish Widows Bank.Figures from the Office for National Statistics showed that the annual property price increase in London was 17 per cent.Recently, concerns have been raised that the government's Help to Buy policy is distorting the market and the Bank of England is currently reviewing the policy.However, Mr Noakes said this is not one of the factors currently driving the London market and only two per cent of purchases in the capital have been made through the scheme.Business secretary Vince Cable has described rising house prices as a "real, real worry", as they have contributed to household debt and could undermine the economic recovery.He said debt has fallen back quickly as people repaid their debts but warned it is forecast to rise again sharply and surpass previous levels.However, Mr Cable added that Help to Buy has had a relatively minor impact on the London property market. 

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