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Bank of England to get extra powers over housing market Bank of England asks for extra powers over housing market
(about 7 hours 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 asked formally for new powers to prevent a housing boom and bust.
Under the new powers, the Bank will be able to impose limits on how much people can borrow to buy a home. Under the powers, the Bank would be able to limit how much people can borrow to buy a home, according to their financial circumstances.
This would be determined by a loan-to-income ratio. The Bank has also 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. Its Financial Policy Committee (FPC) can already make recommendations about loan amounts.
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. 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 measuresBuy-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.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.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 BuyHelp 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.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'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.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.Help to Buy loans are already restricted to 4.5 times a borrower's income.