Bank of England takes on new powers over mortgage lending
The Bank of England has today taken on more powers regarding mortgage lending; allowing it to impose limits on how much people can borrow to buy a home using a loan-to-income ratio.
The BofE has given a clean bill of health to the government backed Help to Buy mortgage scheme, which aims to help first-time buyers step on to the property ladder.
Under the new plans put forward by Chancellor George Osborne, The BofE’s Financial Policy Committee (FPC) will have the power to enforce its recommendations about loan-to-income ratios.
Earlier this summer, the FPC suggested banks and building societies should restrict lending of large loans - those of greater than 4.5 times income - to 15% of mortgages.
The FPC also announced that high loan-to-value lending now accounts for just 9% of mortgages - compared to 25% in 2007.
The BofE has also requested that its powers are increased to cover both residential and buy-to-let mortgages. On the latter, it wants to ensure that the income that landlords receive is greater than the interest payments on their mortgages.
Placing these controls on investors may help cool the market by preventing landlords gambling on hefty rises in house prices. It is likely these powers will be active by mid-2015.