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RBS follows Lloyds with mortgage cap

09 Jun 2014

RBS have become the second major bank to limit mortgages, following Lloyds TSB's move a few weeks ago. The move applies to loans of £500,000 or greater, and limits the borrower to 4x their income. RBS have also capped mortgage tenure at 30 years, following an increase in longer term mortgages as more people have attempted to reduce their monthly payments by lenthening the term

As reported in a previous Go Global piece, the change is only likely to have a significant effect on house prices in Greater London and the South-East, where the vast majority of loans greater than £500,000 occur. The move will put further pressure on other major lenders to implement similar limits, and will no doubt please the Bank of England Governor, Mark Carney, and the Monetary Policy Committee (MPC), which is responsible for setting UK interest rates. It means that the MPC are less likely to have to use the relatively blunt instrument of interest rates to cool house prices in the above regions, which would present the risk of prematurely slowing the UK's economic recovery in all regions and industries

It's probably no coincidence that Lloyds and RBS are the first major lenders to implement the policy, as both are effectively state-owned following the financial crash. By limiting the bigger loans, the banks are reducing their exposure should another crisis occur, as this will ensure a smaller amount of borrowers will not be able to keep up their monthly payments - and therefore reducing the likelihood of needing another bail-out by the UK taxpayer

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