Lloyds Limits Mortgage Lending to Counteract London Gains

May 20, 2014 1:17 pm ET

(Updates with Bank of England comment in fifth paragraph.)

May 20 (Bloomberg) -- Lloyds Banking Group Plc, the U.K.’s biggest mortgage lender, said it will impose limits on lending to homebuyers to counteract rising house prices in London.

The bank will cap lending at four times salary on loans of more than 500,000 pounds ($842,300), Lloyds said in an e-mailed statement today. The lender, which is 25 percent owned by the government, said the policy will affect about 8 percent of its lending in the U.K. capital.

“This is a targeted response to an issue largely in the upper tiers of the London housing market,” Stephen Noakes, group director of mortgages at Lloyds, said in the statement. “This prudent update to our lending policies is intended to manage risks to our business and for our customers.”

Lloyds is the first of Britain’s biggest mortgage lenders to announce measures to cool house-price gains and protect itself from potential future losses. Bank of England Governor Mark Carney has warned housing poses the biggest risk to Britain’s economy. London prices have reached record highs, with a typical home now going for 458,000 pounds.

Sarah Bailey, a spokeswoman for the Bank of England, said by telephone that Lloyds’s move was a “commercial decision for the firm.”

Lloyds said the government’s Help to Buy mortgage-support program isn’t driving prices in London, and said 2 percent of purchases in the city this year have used the plan.

“The group continues to support the Help to Buy mortgage guarantee scheme as it has raised confidence in the housing market, particularly outside of London,” Noakes said.

The U.K.’s coalition government is coming under pressure from opposition politicians to modify Help to Buy, which allows homebuyers to purchase properties with small deposits.