The London mortgage squeeze

The housing plight of London's key workers is illustrated today with a scheme by NatWest Bank to restrict how much money it is willing to lend as mortgages according to postcode.

Known as "redlining" the practice places restrictions on how much can be borrowed in certain areas, and is bound to hit those nurses, police, firefighters, teachers and ambulance crews struggling to afford a home. The latest version of "redlining" requires deposits of at least 25 per cent and excludes almost half of London from the bigger 95 per cent mortgages first-time buyers desperately need.

The restrictions are based on those postcodes where prices have risen most sharply in the past few years. They include very expensive areas like Hampstead (NW3), St John's Wood (NW1) and Battersea (SW8). But also hit are the locations where key workers on low incomes are looking to buy, like Lewisham (SE13), South Norwood (SE26) and Newham (E16).

But the bank has placed no restrictions on some of the most expensive parts of London, where few properties are bought on mortgages anyway, like W1, W8, W14, SW1, SW3 and SW10 (which include Mayfair, Belgravia, Knightsbridge Kensington and Chelsea) and also the City and the Isle of Dogs (E14). At the other end of the unrestricted postcodes are places which have lagged behind the house price boom like Plumstead (SE18) and Thamesmead (SE28).

London house prices have doubled since 1996, but salaries have lagged behind. As a result, public service employees on low incomes cannot hope to buy anything without a 90-95 per cent mortgages.

The Government has acknowledged their plight and taken measures such as offering cheap loans and even reducing stamp duty for the least expensive homes in the most deprived areas.

But NatWest's redlining map also covers some of those same deprived areas, like East Ham (E6), Edmonton (N18) and Canning Town (E16). The Bank's motive is mainly to protect their investment from the risk of property prices falling back from current record levels. Although no one is forecasting a crash in house prices, parts of London which saw the biggest percentage rises in 2001 could suffer a drop.

However, some areas where property prices have risen fastest remain without restrictions. NatWest's mortgage restriction policy is being reported to the Council of Mortgage Lenders by Halifax. A NatWest spokesman said: "The last thing we want to do is lend large amounts of money if there is a risk of negative equity." The bank insists it will deal with applications on merit.