According to a spokesman for the FCA, moves by the Bank of England’s FPC to cap loan-to -income ratios and implement affordability measures means the regulator must consult on carrying out general guidance.
In a statement, the PRA also said it would launch a consultation on the measures.
The FCA spokesman said: “This will only affect a small number of FCA-regulated firms, so general guidance is considered a proportionate and appropriate approach to implementing the loan-to-income ratio, especially while the industry continues to adjust to the MMR.
“The FPC’s recommendations are consistent with our aim to hard-wire common sense into mortgage lending and ensure mortgages remain affordable for consumers if interest rates rise in line with market expectations.”
One FPC recommendation is for lenders to limit domestic mortgages with an LTI ratio of greater than 4.5 to no more than 15 per cent of new mortgages.
Simon Morris, partner at law firm CMS Cameron McKenna, said: “This shows how the new regulatory model works. The FPC is scanning the economic horizon, spotting risks and calling on the regulators to ensure that a whole market dampens its lending activity.”
Coming so soon after Funding for Lending and Help to Buy, as well as the MMR, advisers expressed surprise that the FPC should seek to dampen the housing market.
Andrew Montlake, director at London-based Coreco, said: “This is indeed confusion. It is politically motivated, ignoring supply side issues.”
Adrian Anderson, director of London-based broker Anderson Harris, said: “The problem for years has been borrowers struggling to provide deposits to get on the housing ladder, resulting in first-time buyers falling away.
“No sooner have we seen the situation improve with government-assisted schemes, it puts the brakes on again. It seems strange that so soon after the MMR was introduced, and hasn’t really been given time to bed in, more restrictions are on the agenda.”
However, Ben Brettell, senior economist for Bristol-based Hargreaves Lansdown, said: “The fact that the FPC has taken some steps to limit future excesses in the mortgage market is a welcome development, as ever-increasing household debt levels would certainly pose a threat to financial stability.”
| Lending Caps |
New affordability test asks – will borrowers be able to afford mortgages if interest rates were 3 percentage points higher than current level? · No more than 15% of a lender’s mortgages to exceed a loan to income ratio of 4.5. · Monetary policy will focus on price stability rather than “sector-specific issues”. · Interest rate rises seem less likely in the short term. |
