High loan-to-value borrowing could be reduced under Bank of England suggestions

House Prices

High loan-to-value (LTV) mortgages could become rarer if the Bank of England introduces a cap on mortgage lending, making it difficult for first time buyers to get on the property ladder.

Maximum LTV ratios could be imposed under a set of “direct constraints” on the mortgage sector, according to a recent speech made by the deputy governor of the Bank of England Charles Bean. The changes could penalise buyers with small deposits who are already struggling to obtain the finance they need in the current post-recession market.

Experts agreed that LTV ratios over 100 per cent should not be reinstated but a 90 per cent rate limit would still prevent people with good credit profiles from purchasing a property.

Angel Mas of mortgage insurance company Genworth Financial said: “Any proposal that requires borrowers to save larger deposits would widen the current barrier to homeownership; with other un-intended consequences including, potentially, lower borrower protection in the form of unsecured top-up loans”.

Nigel Bedford of Largemortgageloans.com said that the industry had already self regulated itself. Currently there are just 25 mortgage deals at a 95 per cent LTV rate, where as three years ago there were 986.

Mr Beford said that if a cap on lending was introduced, “sentiment would be affected more than substance”.