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Bank of England to get extra powers over housing market | Bank of England to get extra powers over housing market |
(34 minutes later) | |
The Bank of England has accepted new powers to prevent a housing boom and bust, as suggested by the Chancellor, George Osborne. | |
Under the new powers, the Bank will be able to impose limits on how much people can borrow to buy a home. | |
This would be determined by a loan-to-income ratio. | |
At the same time the Bank has given a clean bill of health to the government's Help to Buy mortgage scheme. | |
The Bank's Financial Policy Committee (FPC) already has the power to make recommendations about loan-to-income ratios, but it has no power to enforce them. | |
Indeed earlier this summer the FPC recommended that banks and building societies restrict lending of large loans - by which it meant loans greater than 4.5 times income - to 15% of mortgages. | |
In June, George Osborne promised that the Bank's powers to "recommend" would be beefed up to powers to "direct", in order to prevent a dangerous bubble developing. | |
Buy-to-let measures | |
The Bank said it wanted the new powers to cover both residential and buy-to-let mortgages. | |
On buy-to-let, it wants to make sure that the income that landlords receive is greater than the interest payments on their mortgages. | |
Placing such controls on professional investors might help cool the housing market, by preventing landlords speculating on hefty rises in house prices. | |
The stronger powers are expected to be in place before June next year. | The stronger powers are expected to be in place before June next year. |
Help to Buy | |
Last year, the Bank of England was asked to report back on whether the government's Help to Buy mortgage scheme was destabilising the housing market. | |
The Bank has now said that Help to Buy is not to blame for rising house prices. | |
It said 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 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," the FPC said. | |
It also said house prices appeared to be cooling sooner than the FPC had expected when it met in June. | |
Earlier this week, the Nationwide said annual house price inflation had fallen to 9.4% in September from 11% the month before. |