The UK’s biggest lender announced it was tightening its affordability criteria, as figures showed mortgage advances soared by more than a third in April.
Total advances reached £16.6bn during the month, 8 per cent more than in March and 36 per cent higher than in April 2013, according to the Council of Mortgages Lenders.
The figures came as Lloyds Banking Group announced it was imposing a cap on high value mortgages, prompting speculation that other lenders will soon follow suit.
The Government-backed group, whose brands include Halifax, Bank of Scotland and Scottish Widows Bank, will now only lend a maximum of four times borrowers’ income for people taking out mortgages of more than £500,000.
Lloyds said it was tightening its rules to address “inflationary pressures” in the London property market.
Data from the Office for National Statistics yesterday showed that house prices in London had soared by 17 per cent during the year to the end of March. The increase was nearly three times bigger than the gains seen in the next best performing region.
Stephen Noakes, group director of mortgages at Lloyds, said: “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 that the change would affect only around 8 per cent of the group’s lending in London, while it would continue to support the Help to Buy scheme.
The ONS said the average cost of a home in London reached £459,000 in March. If house price inflation in the capital continues at its double-digit rate the typical home there is likely to cost more than £500,000 before the end of this year.
The announcement by Lloyds comes just days after Bank of England governor Mark Carney said the Bank was monitoring lending procedures to ensure that mortgages were only advanced to people who could afford them. His comments follow the introduction of strict new affordability criteria at the end of April under the Mortgage Market Review.
Adrian Anderson, of mortgage brokers Anderson Harris, said: “With the largest state-owned lender taking action over Mark Carney’s comments last weekend, other lenders will inevitably follow suit.
“It will make it much more challenging for people remortgaging and is a double blow post-MMR.
“It’s also going to make it harder for people to move up the ladder as they may not be able to borrow enough to buy what they require, so more people may stay put.”
Brian Murphy, head of lending at Mortgage Advice Bureau, added: “The lopsided London property market is being fuelled by factors outside of the mortgage market, but it is important to have measures in place to ensure we aren’t carried along with the tide.
“If the largest lender is taking this approach, it would be no surprise to see others considering their position in the weeks ahead.”
Strong house price gains have led to concerns that a runaway market is developing.
Recent gains have left the typical cost of a home in England standing at £263,987, according to Zoopla.
But with the exception of London, there is growing evidence that the property market is beginning to slow down. Both the ONS and Halifax reported slight price drops in March, with Halifax also recording a dip in April.
Bank of England figures also showed two consecutive monthly falls in the number of mortgages approved for people buying a home in February and March.
