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Monday, 21 January, 2002, 08:29 GMT
Banks curb mortgage lending
In most places, house prices are still rising but at a slower rate
Two UK mortgage banks have admitted introducing curbs on housing loans in areas where prices have risen sharply.

NatWest said it didn't want to increase the risk of "negative equity" - when falling prices can leave homeowners with mortgages greater than the value of their homes.

Alliance & Leicester, the other bank adjusting its policy, said it was concerned about "overall uncertainty" in the housing market.

Some competing lenders and mortgage advisers have criticised the moves, saying they could trigger price falls.

Tighter lending:

One in four London postcodes are affected by NatWest's curbs

Alliance and Leicester's maximum mortgage in London and the South East is 90%

Property prices will slow this year as interest rates go up and as unemployment rises, predicts the Council of Mortgage Lenders

But the Council of Mortgage lenders has said that the boom of 2001 may be over, predicting that house prices will rise more slowly this year.

"We don't want to increase the risk of negative equity for people," a NatWest spokesman told BBC News Online.

A cost to the borrower would lead to a cost to the lender, he added: "It's not cheap to repossess people's houses."

London and the South East

"We have revised our policies on lending in certain areas of London," the NatWest spokesman said, noting that about one in four London post codes are affected.

Similarly, Alliance & Leicester has decided not to lend more than 90% of a property's value in London and the South East for houses costing more than 100,000.

"We were concerned about the very high rises in prices in those areas," spokesperson Ginny Broads told BBC News Online.

"It's about the overall uncertainty" in the wake of 11 September, she said.

Angry competitors

Several mortgage professionals fear that limiting loans could in fact cause prices to slip.

"If a major lender restricts lending in certain areas, it could affect property values," Ray Boulger of independent financial advisor Charcol told the Daily Mail.

"It will hit first-time buyers hardest and that will affect the rest of the market," said Halifax group economist, Martin Ellis.

Halifax, Nationwide, HSBC, Barclays and the Woolwich all said they had no plans to raise deposits on mortgage lending.

Halifax will raise the issue with the Council of Mortgage Lenders, the Daily Mail said.

"We want to ensure that others do not follow suit," the bank told the newspaper.

No power

"You can't haul someone in front of the Council of Mortgage Lenders," the NatWest spokesman told BBC News Online, dismissing the threat.

Ms Broads pointed out that the Council accepts that mortgage lenders should be free to make such decisions individually.

"It is a matter for individual banks and building societies to establish their own position," said a spokeswoman from the council.

No market prediction

Neither bank would divulge further details about which areas would be affected by their policies.

And they both stressed that they were not predicting that house prices were about to crash.

NatWest said the limits would be focused on loans where a borrower would raise 90-95% of a property's value.

Softer market

The latest figures from the Council of Mortgage Lenders show that lending rose 35% in 2001, though almost a third of the new loans represented remortgaging.

"Last year was extremely favourable for home buyers, with record levels of lending for house purchase and remortgaging," said the council's director general, Michael Coogan.

"The aggressive cuts in interest rates during recent months have helped to offset any adverse impact following 11 September," he said.

Looking ahead, "the housing and mortgage markets will grow less strongly in 2002," Mr Coogan said.

"While the economic outlook remains positive, small rises in interest rates and higher unemployment are expected."

"Borrowers need to think how this may affect their household finances and whether they need insurance to cover their mortgage payments if they lose their jobs," he said.

Peter Vipond, head of research and statistics at the British Bankers Association, was less pessimistic.

"There is still strong demand for money for buying new property, and our evidence is that that is in the context of an economy which is still strong and robust, he said.

The BBC's Rory Cellan-Jones
"Mortgage lenders are arguing over how generous they should be"
Benny Higgins, Head of Retail Banking, NatWest
"We are doing the right thing by our customers"
See also:

08 Jan 02 | Business
UK house price growth 'very strong'
03 Jan 02 | Business
UK house price growth 'past peak'
02 Jan 02 | Business
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08 Nov 01 | Business
UK's summer property boom
05 Sep 01 | Business
House price boom continues
04 Sep 01 | Business
Nationwide lifts house price gloom
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