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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