POSTED 13 October 2014

Bank of England to get More Powers over Housing

Bank of England to get More Powers over Housing Market

As suggested by the Chancellor, the Bank of England has accepted new powers to prevent a housing boom and bust. Under these new powers, the Bank will be able to impose limits on how much people can borrow to buy a home, determined by a loan-to-income ratio.

Currently, the Bank’s Financial Policy Committee (FPC) has the power to make recommendations about loan-to-income rations, but it has no power to enforce them. Earlier this summer, the FPC recommended that banks and building societies restrict lending of large loans to 15% of mortgages.

In June, George Osborne promised that the Bank’s powers to “recommend” would be beefed up to powers to “direct”, to help prevent a dangerous housing bubble from forming.

Buy-to-Let Mortgages

The FPC noted that high loan-to-value lending currently accounts for just 9% of mortgages, compared to 25% in 2007, which suggests that riskier lending in under control.      

The Bank said that it wanted to have power over both residential and buy-to-let mortgages. It wants to make sure that buy-to-let landlords receive income that is greater than the interest payments on their mortgages.

They believe that controls such as these may help cool the housing market.

The stronger powers are believed to come in to affect in June of next year.

Help to Buy Scheme

The Bank of England was asked to report back on whether the government’s Help to Buy mortgage scheme posed a risk to the economy. Mark Carney, the Bank’s governor, wrote to the chancellor saying, “Under current market conditions, the committee assesses that the scheme does not propose material risks to financial stability”.

The report also confirmed that Help to Buy was not to blame for rising house prices. It said that both parts of the scheme accounted for only 5% of total mortgages, and they had been most popular in parts of the country where prices had risen least.

The FPC said, "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."