Mortgage lenders are being warned to watch out for home buyers trying to pass off their borrowing as buy-to-let in order to avoid new caps on high loan-to-income lending.
The new rules would limit most residential mortgage loans to no more than 4.5 times the borrower’s income, in a move intended to reduce the country’s high levels of household debt.
But the Financial Conduct Authority warned lenders today that some residential borrowers would try to defraud banks by pretending they were borrowing for a buy-to-let property, which would not be subject to the cap.
“We expect firms to ensure that application verification procedures for buy-to-let products are robust,” the FCA said.
Under the new rules no more than 15 per cent of a lender’s new residential lending may be on loans greater than 4.5 times the borrower’s income.
They will apply to mortgage lending completed on or after October 1. Firms which do not stick to the caps could be stopped from making high loan-to-income loans all together.
Second-charge loans are also not subject to the new rules. However the FCA wants lenders to keep in mind the intentions of the limits when making such loans.
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