Photo: James Stringer
Earlier this year, Chancellor George Osborne announced that the government would work with the Bank of England to give it the powers needed to ensure the housing market’s stability. Last month, the Bank then proposed new lending restrictions, including a cap based on both debt to income and loan to value ratios.
The independent Bank, though, does not have the authority to actually implement such limits: this lies with the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA).
Now, the government has launched a consultation asking whether the Financial Policy Committee (FPC) should have the power to directly control these limits for macro-prudential purposes.
Indeed, the powers that the Bank is requesting are commonly held by its counterparts in other countries. Loan to value controls are used extensively in countries including Canada, New Zealand and Norway, while both the Hong Kong and South Korea have used debt to income ratios too, which the goverment argues has been “particularly successful”.
“Ensuring the stability of the UK housing market is a crucial part of this government’s long term economic plan, and I have been clear that the independent Bank of England should have the tools it needs to do this,” comments George Osborne.
“That’s why the government is consulting on this issue, to ensure that we can bring forward appropriate legislation to give the Bank the powers it needs.”
The government is calling for comments from consumers and the industry about an appropriate definition of debt, if the Bank were granted powers to direct loan to value and debt to income limits for owner-occupied mortgages.
The consultation will run until 28th November 2014.
The government intends to consult separately in 2015 on the Bank’s recommendations for it to have new powers over the buy to let market.
Source: The Movechannel