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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 recommended that it takes on new powers to prevent a housing boom and bust, as suggested by the Chancellor, George Osborne. 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 said it would be able to impose limits on how much people could borrow to buy a home. Under the new powers, the Bank will be able to impose limits on how much people can borrow to buy a home.
This is known as the loan to income ratio. This would be determined by a loan-to-income ratio.
The Bank would also have the power to force lenders not to give out mortgages which are a high multiple of the borrower's income. 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) can already make recommendations along these lines - and it did so this summer when it restricted high income multiple loans to 15% of mortgages. 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.
In June, George Osborne promised that the powers to "recommend" would be beefed up to powers to "direct", to prevent a dangerous bubble developing. 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.
At the same time, the Bank of England has given a clean bill of health the the government's Help to Buy mortgage guarantee scheme, saying it does not pose material risks to financial stability. 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.