The government is giving the Bank of England new powers over the housing market in a bid to prevent excessive price booms and equally excessive lending by banks.
As promised by Chancellor George Osborne last year, the Bank's Financial Policy Committee has now confirmed it will be able to set limits on debt-to-income ratios and loan-to-value ratios for mortgages. The government is also giving the FPC powers of direction over the new so-called leverage ratio framework' for banks.
Until now the FPC could recommend these - but not enforce them.
"We're confirming that the Bank of England will have further powers to safeguard the stability of Britain's financial system from any future risks posed by our housing market or banks" according to a statement from Osborne.
These additional powers over the housing market - although brand new to the UK - are commonly held by the Bank's counterparts in other countries, according to the government.
LTV limits are used extensively in countries including Canada, New Zealand and Norway. Several other countries including the Netherlands, Switzerland and the US have already introduced leverage requirements for many companies, including banks.
The government also says it intends to consult separately early in the new Parliament on the FPC's recommendations for it to have new powers over the buy to let market with a view to building an in-depth evidence base on how the operation of the UK buy-to-let housing market may carry risks to financial stability.
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Comments
Why May Rob Isn't it clear that it's the unelected Bank of England who now run things in the UK. How many more powers do they need to be given before the penny drops
Now the government want to control the housing market using levers at the Bank of England and whilst everyone would welcome a stable market that does not constantly swing from boom to bust, but attempting to control the market through turning on and off the taps in the supply of mortgage funding does not address the ongoing dire housing shortage....anyway whatever happened to the free market or is this really more economically imposed social engineering
Why wasn't this implemented sooner Oh yeah, we've got Cameron and Osborne in charge, that'll be it. Both very good at saying stuff, but absolutely useless at carrying through with actual actions. Bring on May!
Well that's good. No need to upset all those ageing Councillors and constituents with change / unwanted house building. Keep the thing looking like a Hovis advert and just tweak mortgages so we can revert to realistic house prices as per the examples of Norway and Canada. Pity nobody thought of that before ...............