BSA criticises Osborne move on LTV cap

Speaking after chancellor George Osborne commented that there could be a cap on high LTV to help prevent borrowers over-exerting themselves financially, Mr Broadhead said: “Restricting high LTV products could have a significant effect on consumers if this penalises those who are able to repay such mortgages and pose little risk to financial stability.

“Many existing borrowers, who are already successfully repaying their mortgages, will find it difficult to remortgage in the future while many future borrowers will be deprived of the opportunity to take out a mortgage that they could afford.”

Mr Broadhead said using loan to value as a macro-prudential tool could also give consumers a perverse incentives to ‘top up’ their lending use other more expensive forms of secured or unsecured borrowing so that they can still purchase the property they want.

He added: “In the Mortgage Market Review, the FSA noted that high LTVs did not appear to have played a critical role in falling credit standards and over-rapid credit growth, and while there was a correlation between high LTVs and defaults, other characteristics of the loan such as self certification were more powerful in explaining defaults.

“These findings would suggest that supervisory regulation may be more effective in addressing risks to the system rather than blanket restrictions on LTV ratios.”

Paul Campion, mortgage adviser for Buckinghamshire-based The Financial Management Group, agreed. He said: “This is a bad idea. The Bank of England should be completely independent from government.

“Trying to mess around with the free market by manipulating the housing market like this is a dangerous game.”