Banks move to loosen mortgage lending criteria

The trend, which comes despite the rules brought in to address the easy lending that play such a major role in the last financial crisis, has been prompted by increased competition and a weakening housing market squeezing profit margins.

The competition, which been driven by a saturated market following the emergence of new players such as independent mortgage brokers, has forced established companies to keep mortgage rates near historic lows even as their funding costs have risen.

The climate has also seen lenders take measures such as increasing maximum loan sizes, cutting arrangement fees and reducing rates on their highest LTV loans.

The number of mortgage deals where banks are willing to lend at least 90 per cent of the property value have also increased by a fifth to 1,123 in the past six months alone, according to comparison website Moneyfacts.

A senior executive at one of the country’s largest banks quoted by the FT said: “Everybody is chasing volumes — you need to be very careful at these times that you don’t take risks that will cost you a lot of money later.”

Analysts say the initiatives reflect banks’ efforts to keep winning new business without having to absorb further cuts to their profit margins.

Earlier this month, HSBC’s M&S Bank increased the maximum loan-to-value (LTV) on three of its mortgage products to 95 per cent, and extended the term it is willing to lend for to 35 years.

And last month Clydesdale Bank owner CYBG introduced a new 95 per cent LTV mortgage that also had a higher limit on how much it would lend relative to borrowers’ income.

Other lenders have taken measures such as increasing maximum loan sizes, cutting arrangement fees and reducing rates on their highest LTV loans.

The moves reflect banks’ efforts to keep winning new business without having to absorb further cuts to their profit margins.