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Bank of England asks for powers to intervene in housing market Bank of England asks for powers to intervene in housing market
(about 1 hour later)
The Bank of England wants powers to intervene in the mortgage market, allowing it to limit the value of loans to homeowners to prevent a housing bubble disrupting the financial system. The Bank of England wants powers to intervene in the mortgage market allowing policymakers to limit the value of loans to homeowners and prevent a housing bubble disrupting the financial system.
Threadneedle Street is asking the chancellor for powers to restrict the size of mortgages compared to the value of a property and borrowers’ income, following the 2008 banking crisis. Threadneedle Street is asking the chancellor, George Osborne, for powers to restrict the size of mortgages compared with the value of a property and borrowers’ income, in what is a major policy shift following the 2008 banking crisis. The buy-to-let market will be part of its considerations when deciding to apply any restrictions.
George Osborne had asked the bank in his Mansion House speech in June to consider the need for such powers. The Bank’s financial policy committee (FPC), established by the coalition in response to the 2008 crash, rejected the need for more sophisticated tools to control the housing market. The Bank also warned about rising geopolitical risks and the potential impact on the financial markets.
In June, Carney had recommended that banks restrict lending to borrowers asking for loans of above 4.5 times their income – a move not expected to kick in immediately and which is only a precautionary measure. By asking for new formal powers the Bank will be able to force lenders to make changes and not just recommend them. Osborne had asked the Bank in his Mansion House speech in June to consider the need for such powers and the Bank’s financial policy committee (FPC), established by the coalition in response to the 2008 crash, was responding to the chancellor as it outlined the tools it would require.
The FPC revealed it had discussed last month that “geopolitical and event risks appear more marked” than when it met in June. The committee had been briefed on the risks surrounding the Scottish referendum. It rejected the need for more sophisticated measures to control the housing market, such as restrictions on a regional basis, and instead settled for control over the size of loans relative to a borrower’s income or the value of a property.
The FPC said markets had been “remarkably resilient” to risks in the financial system and it was looking at liquidity levels. But the FPC said it now intended to be able to use its powers over the buy-to-let market as well. In June it did not cite the buy toi let market when it had asked banks to restrict lending to borrowers asking for loans of above 4.5 times their income.
The FPC did not recommend any changes to the help-to-buy mortgage guarantee scheme but is keeping a close eye on the housing market because two-thirds of the 46 systemic banking crises were preceded by housing boom-bust cycles. By asking for new formal powers in today’s announcement, the Bank will be able to force lenders to make changes and not just recommend them.
The FPC did not recommend any changes to the help-to-buy mortgage guarantee scheme which the International Monetary Fund had flagged as making families vulnerable to a rate rise.
The Bank is keeping a close eye on the housing market because two-thirds of the 46 systemic banking crises globally were preceded by housing boom-bust cycles.
The FPC, chaired by the Bank of England governor, Mark Carney, said the fees being charged by lenders to access help-to-buy need not change. “The committee does not see a case for changing the fee or the house price cap on financial stability grounds at this point,” the FPC said.The FPC, chaired by the Bank of England governor, Mark Carney, said the fees being charged by lenders to access help-to-buy need not change. “The committee does not see a case for changing the fee or the house price cap on financial stability grounds at this point,” the FPC said.
Osborne said: “I was pleased to see the committee’s conclusions that the scheme does not pose material risks to financial stability in the UK and has not been a material driver of recent house price growth.”Osborne said: “I was pleased to see the committee’s conclusions that the scheme does not pose material risks to financial stability in the UK and has not been a material driver of recent house price growth.”
Recent data from Nationwide shows house prices fell last month for the first time in 17 months, although average London prices reached another record high of £401,000 – 31% above their 2007 peak – presenting a dilemma for policymakers. The Council of Mortgage lenders said it did not believe help-to-buy was stoking any bubbles. “It is reaching its intended target, but not stoking disproportionate levels of activity in low-deposit lending nor acting as any significant influence on house prices,” said Paul Smee, the group’s director.
The FPC was formalising its request for new powers as signs emerge that the housing market is cooling. Recent data from Nationwide shows house prices fell last month for the first time in 17 months, although average London prices reached another record high of £401,000 – 31% above their 2007 peak – potentially presenting a dilemma for policymakers.
The FPC was publishing its views on the mortgage restrictions after its last quarterly meeting, in which it revealed that it had discussed how “geopolitical and event risks appear more marked” than when it met in June. The committee had been briefed on the risks surrounding the Scottish referendum.
The FPC said markets had been “remarkably resilient” to risks in the financial system and it was looking at liquidity levels.