Mortgage blog: Bank of England to be given powers to curb lending

Posted 20 June 2014

The Bank of England will be given legal powers to curb mortgage lending in order to protect the British economy against a runaway housing market. George Osborne has announced that the Bank will be given licence to take decisions in the housing market including possibly limiting the amount of money people can borrow to buy a new home.

The Chancellor's move is intended as signal that he expects Mark Carney, the governor of the Bank of England, to do whatever is necessary to prevent a housing bubble.

Osborne said: "Our economic plan has brought stability and security and I'm not going to let anything undermine that. So I am acting against future risks in the housing market by today the Bank of England new powers to intervene and control the size of mortgages compared to family incomes and house values."

According to the Guardian, the Chancellor's move "signals a clear passing of responsibility to the Bank for controlling demand". This is in contrast to the previous governor, Mervyn King, who said in 2012 that he did not want powers to limit mortgage lending because of sensitivity about using them. And some at the Bank of England believe decisions on whether to stop individuals borrowing money to buy a home on grounds of risk should be taken by politicians rather than Bank officials.

Osborne will legislate to allow the Bank of England to "direct" limits to the amount of money people can borrow as a ratio of their salary or to impose loan-to-value caps on the size of a mortgage, as a proportion of the purchase price.

In practice, the BoE is likely to use alternative measures to restrict house prices before it uses its new legal powers. These could include tightening affordability tests to make sure borrowers can cope with higher interest rates, limiting the amount of risky mortgages lenders can hold in a portfolio, or insisting that banks hold higher capital reserves.

Keith Osborne, editor of, says: "The government are keen to pass the responsibility for the housing market to an independent body and the Bank of England will now have a broader range of powers. They may not even need to use these as there are signs that lenders have already started to regulate their mortgages. On top of the tougher rules introduced in April several large lenders including RBS and Lloyds have already introduced their own lending limits."

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