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| Bank of England to get extra powers over housing market | Bank of England to get extra powers over housing market |
| (about 1 hour later) | |
| The Bank of England has accepted 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 will be able to impose limits on how much people can 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 would be determined by a loan-to-income ratio. | 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. | 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. | 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. | 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. | 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 | Buy-to-let measures |
| The FPC also noted that high loan-to-value lending now accounts for just 9% of mortgages - compared to 25% in 2007, during the boom - suggesting that riskier lending has not got out of hand. | |
| But the Bank said it wanted its 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. | 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. | 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 | Help to Buy |
| Last year, 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. | |
| The Bank's governor, Mark Carney, has now written to the chancellor stating: "Under current market conditions, the committee assesses that the scheme does not pose material risks to financial stability." | |
| The Bank also confirmed that Help to Buy was 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. | 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. | "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. | 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. | Earlier this week, the Nationwide said annual house price inflation had fallen to 9.4% in September from 11% the month before. |
| Help to Buy loans are already restricted to 4.5 times a borrower's income. |