Nationwide rations big home loans

Nationwide is to cut back on large mortgages after the wave of job losses among highly paid City workers and fears of adownturn in the property market.

Mortgages of £500,000 to £1m have become commonplace in London and the south-east over the past couple of years, fuelled by fast-rising salaries and bonuses. But this week Nationwide, Britain's third largest lender, will introduce controls which in some cases will screen out applicants wanting big loans.

"We are clarifying internally our criteria for large loans and how much we are prepared to lend. You only have to look at what Merrill Lynch and the likes are doing with job cutbacks to want to be more careful," said Nationwide director John Sutherland.

It has identified the "bulge bracket" of big City earners as among the most vulnerable to a downturn in the property market. "Lending 90% on a £90,000 home is one thing, but lending 80% on a £1m home exposes us to a much higher level of risk," hesaid. Options include requiring higher deposits or charging higher rates of interest on big loans.

Property pundits will be closely watching the monthly house price inflation figures to be published by Nationwide tomorrow. Last month the society declared that the pace of house price inflation, running at 10.9% a year, is "unsustainable", fuelling fears that the property market is heading for a repeat of the boom and bust of a decade ago.

Nationally, average house prices stand at £89,962 but in many London boroughs average prices have breached £250,000. Savills Private Finance, one of Britain's largest mortgage brokers, says its average loan is now £300,000.

Lenders are becoming increasingly concerned about the risk posed by "rate tarts" who move from one mortgage company to the next to take advantage of short-term discount and fixed deals. Re-mortgaging is concentrated among borrowers with big loans, but they are now being shunned by some lenders. Two weeks ago Portman building society imposed a maximum loan limit of £500,000 for remortgagers, while Abbey National has withdrawn its loss-leading discount loans for anybody wanting a mortgage of £500,000 or more, according to Ray Boulger at mortgage brokers Charcol.

Many lenders are still prepared to chase the £1m-plus mortgage market, however. HSBC gives an extra discount of 0.5% off its base lending rate on large loans. "We do a lot of big-ticket business and have no plans to reduce our discount," said an HSBC spokesman.