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Bank of England seeks more power over mortgage lending

03 Oct 2014

The Bank of England has formally asked for more control over mortgage lending, with the aim of limiting future risk of housing boom and bust. New powers would enable it to impose limits on the amount people can borrow to buy a home, relative to their financial circumstances.

Currently, the Bank’s Financial Policy Committee (FPC) can only make recommendations about mortgage loan amounts. However, in June Chancellor George Osborne suggested that the Bank’s powers could be increased, enabling them to ‘direct’ rather than just ‘recommend’.

It has now formally requested that those powers be granted over both residential and buy-to-let mortgages and, pending consultation and a response from the Chancellor, these ‘powers of direction’ may be in place by June 2015.

In recent months the FPC has recommended that banks and building societies restrict loans greater than 4.5 times income to 15% of mortgages. On buy-to-let, it wants to ensure that the income that landlords receive is greater than the interest payments on their mortgage. It is these kinds of recommendations that the Bank may in future be able to ‘direct’.

Meanwhile, the Bank’s governor Mark Carney has given his approval to the Government’s Help to Buy mortgage scheme, claiming that the scheme was not the cause of rising house process since it accounted for only 5% of mortgages and was most popular in areas where prices had risen least.

Mr Carney said that ‘under current market conditions, the committee assesses that the scheme does not pose material risks to financial stability.’