Bank of England handed greater powers on mortgages
02/10/2014
The Bank of England has been granted new powers, which are intended to enable them to help the UK economy avoid another housing bubble.
The new powers will allow the Bank to set limits on how much people are allowed to borrow when purchasing a home. They said this will be based on a ‘loan-to-income’ ratio, which is likely to be set at 4.5 times a household’s annual income.
Earlier this year, the Banks Financial Policy Committee (FPC) recommended that the government and Financial Conduct Authority put a limit on how much a person can borrow to buy a home. They said that no more than 15% of home loans should be more than 4.5 times an applicant’s income.
At the moment, only 9% of mortgages are above this limit, which suggests the housing market has not lost control over lending. However, the government has taken the precautionary measure to give additional powers to the Bank of England, to ensure that lenders do not start approving too many ‘risky’ loans.
The Bank also revealed that the Help to Buy scheme has not been a major factor in rising house prices.
Mark Carney, governor of the Bank of England wrote a letter to chancellor George Osborne that stated: "Under current market conditions, the committee assesses that the scheme does not pose material risks to financial stability."
"The scheme does not appear to have been a material driver of growth - for example, take-up of the scheme has been weak in London, where house price growth has been strongest."
He also said that the scheme only accounted for 5% of total mortgages, therefore suggesting that demand from other areas of the market has been the main driver in price growth.
Buy-to-let restrictions
The FPC has also expressed a desire for additional powers on top of the ones they’ve just been granted.
They said that they want to be able to set limits on buy-to-let-mortgages too, therefore placing restrictions on how much landlords can borrow.
The Bank has stated that they want to ensure that landlords receive more income from renting out their property, than what they would be expected to pay back in mortgage repayments.
One of the advantages of this would be that it could help to cool the housing market, by preventing landlords from gambling on large house price rises.
These new powers are currently in the process of being approved by parliament, and are expected to be granted to the bank by June 2015.
Need financial advice?
If you have any personal finance questions related to this news article, then please contact our financial advisers. You can get in touch by asking a question online, calling us on 0800 092 1245, or by arranging a visit.
Share this..
Related stories
Which would work with UK mortgage lenders, the stick or the carrot?
With news that the FSA is looking into possible fines for mortgage lenders with unhelpful attitudes towards home repossessions, there is a debate as to whether the stick or the carrot is the right way ahead. While some may argue the carrot was the taxpayer funded rescue package, the fact is that the UK property market is still very weak and many mortgage companies cannot afford to carry excess bag...
Read MoreRoyal Bank of Scotland announces no change in mortgage rates
The Royal Bank of Scotland, which is effectively controlled by the UK government, has today confirmed there will be no change in its variable mortgage rate. The company, seemingly going against UK government policy, has suggested that it has both an obligation to mortgage holders and savers in the UK and a reduction in the variable mortgage rate would lead to a reduction in savings rates. But does...
Read MoreInterest rates will not affect mortgage market, says Firstrung
Interest rates will not affect the mortgage market because it is "completely detached" from the Bank of England base rate, mortgage broker Firstrung has said. The Bank of England base rate is currently at 5.75 per cent, but recent research from mortgage website mform.co.uk found that the most common standard variable rate among lenders is 7.74 per cent - a difference of almost two per cent.Firstru...
Read MoreFSA to review the UK mortgage market in the autumn
As a result of a Treasury select committee report into the UK mortgage market it looks as though the FSA (Financial Services Authority) is set to perform an in-depth investigation into the sector in autumn 2009. Amid claims that those in mortgage arrears have been charged disproportionately high fees in relation to advice, assistance and ultimately late payment of their mortgage repayments, we cou...
Read MoreDon't get sucked in by the mortgage sector hype!
While liquidity in the UK mortgage market has been reduced somewhat over the last couple of years we are starting to see competition emerge and various offers appear. However, it is essential that you are not blinded by any potential short-term bargains and short-term discounts to the detriment of your long-term financial health.
We've all seen those "teaser" mortgage agreements whi...