Lloyds limits mortgage lending on loans over £500,000

Lloyds Banking Group says it will limit mortgage lending to four times income for loans worth more than £500,000.

Lloyds said the move was to address "specific inflationary pressures in the London housing market".

Its action comes as figures show prices rising at an average of 8% a year - with far bigger gains seen in London.

On Sunday, the Bank of England Governor Mark Carney warned about the risks of high loan to value mortgages.

"Whilst the housing market outside of London is starting to improve, the recovery is fragile and prices largely remain below their peak. It is important we don't disrupt this recovery," said Stephen Noakes, group director of mortgages at Lloyds.

"But in London, house prices are almost now 30% 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 expected the policy change to affect around 8% of its lending in London.

Help to Buy

The new cap will not apply to customers renewing their mortgages.

It will apply to people taking out additional borrowing or those remortgaging to move.

It applies to lending through Halifax, Lloyds Bank, Bank of Scotland and Scottish Widows Bank.

Ray Boulger, who works for the mortgage broker John Charcol, said the move may well pressure other lenders to follow suit.

Earlier, figures from the Office for National Statistics showed that the annual property price increase in London was 17%. For the UK as a whole prices have risen by 8%.

This has prompted some commentators to call for the second phase of the government-backed Help to Buy scheme in the UK - which supports new homebuyers who might have struggled to get a mortgage - to be scaled back.

New controls

Prime Minister David Cameron said he would consider changes to the government's Help to Buy scheme if the Bank of England thought it necessary.

However, Mr Noakes said the government's Help to Buy scheme was not a factor in the London market, as just 2% of London purchases came through the scheme in 2014.

He said he supported the scheme as it "raised confidence in the housing market, particularly outside of London".

The Bank of England's Financial Policy Committee could announce new controls on lending as early as next month.

The new measures could affect both lenders and borrowers, for example requiring lenders to hold more capital on risky loans, thereby making them more expensive while borrowers could be subject to more stringent affordability tests.

The former Bank of England policy maker Kate Barker told the BBC: "What the bank is really concerned about is not a housing market bubble, it's irresponsible lending. They could ask lenders to hold more money against high risky lending and that would make it more expensive for lenders and it would mean less lending at, for example, high loan to income ratios."