A pedestrian wearing a face mask walks past a Barclays branch in central London
Barclays shocked customers when it reduced the maximum they could borrow from 5.5 times income to 4.49 times without notice, including for those with mortgages already agreed in principle © AFP via Getty Images

Barclays has been forced to withdraw mortgages for certain customers after coming close to breaching a regulatory limit on lending to higher-risk borrowers.

The UK bank shocked customers last week when it reduced the maximum they could borrow from 5.5 times income to 4.49 times without notice. The change affected borrowers who had already agreed mortgages, putting some property purchases at risk of collapse.

The decision was made after Barclays came close to a limit imposed by the Prudential Regulation Authority, the banking regulator, stipulating that no more than 15 per cent of mortgages for each lender can have an income multiple of 4.5 times or above, according to people briefed on the decision.

UK banks have been inundated with mortgage applications in recent weeks as the temporary cut to stamp duty has led to soaring demand for property, with UK house prices hitting record highs last month.

Barclays said: “We recently announced some changes to our loan-to-income limits. As a responsible lender, we made this decision to ensure we continue to adhere to regulatory obligations.”

Brokers fear other lenders could be forced to take similar action in the coming weeks.

NatWest made changes to its mortgages last week, reducing the maximum loan-to-income rate it offered self-employed customers from 4.9 to 4.25 times.

Brokers added that the Barclays decision came as a blow to borrowers since it covered existing applications — those where an agreement in principle has been made and an applicant may have paid for a survey or legal fees and is waiting for the lender’s confirmed offer to exchange contracts.

It may also have an impact beyond Barclays’ borrowers by holding up homebuying chains.

Adrian Anderson, director of mortgage broker Anderson Harris, said: “It is unusually brutal. The thing that shocked me was that it included pipeline cases.”

“You could be in a situation where you’ve got everything ready and you’re anticipating getting an offer from the lender. Everybody else in a chain will have their offers and you’re almost back to square one. You could lose your purchase.”

One client who had been taking a £2m mortgage with Barclays found the maximum that could be borrowed reduced to £1.8m. “We may have to start again with another lender,” said Mr Anderson.

Barclays’ mortgages based on up to 5.5 times income were popular among higher earners, and brokers said demand had increased in the post-lockdown period as mortgage restrictions tightened in the wider market.

Aaron Strutt, product director at mortgage broker Trinity Financial, said there was “massive demand for 5.5 times salary”, adding that Barclays had become “really popular” because no other lender was offering it on the same terms.

Mr Strutt said one client on Monday morning discovered her mortgage, which had been agreed in principle, was no longer valid. “She’s looking for alternatives. The difficulty is there aren’t really any alternatives at the moment.”

Many property deals were held up earlier in the year, while demand has intensified since the easing of social-distancing restrictions and the announcement of a nine-month stamp duty holiday from July.

The PRA declined to comment.

Get alerts on Barclays PLC when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article