Bank of England governor Mark Carney has laid out several further options that would be considered in addition to the cap on mortgage lending already introduced to cool the housing market.
At the end of June the Financial Policy Committee recommended lenders should limit their loan-to-income multiples to no more than four-and-a-half and that no more than 15 per cent of a lender’s book can account for such high loan-to-income multiples.
Mr Carney stated that the BoE was not currently contemplating any additional measures, although it could look at adjusting the cap that had been put in place if price inflation continues unabated.
Giving evidence to the Treasury Select Committee, Mr Carney added that its suite of tools could see it bring in restrictions on the loan-to-value ratios bank can lend, or require banks to hold more capital against activities in particular sectors or otherwise to provide “counter-cyclical buffers”.
He called the moves to protect the mortgage up until now an “insurance policy against irresponsible lending”, but added that the BoE stopped short of banning high loan-to-values because they were useful for sections of the market like first-time buyers.
Mr Carney restated that housing issues are the biggest risk over the medium term to economic expansion, with the BoE particularly worried about price dynamics.
He told MPs: “Risk around indebtedness concerns us because of the direct impact on banks and building societies,” adding that major stress test were being undertaken which have a severe housing shock at the heart.
Questions moved on to the buy-to-let market, with Andrew Bailey, chief executive of the Prudential Regulation Authority, stating that while he would be very attentive to the area, the PRA has no toolkit to “wade in” in line with it’s statutory objectives.
Donald Kohn, external member of the Financial Policy Committee, agreed that they would keep a close eye on it, adding that the buy-to-let market was a potential safety valve that might not be completely safe.
Last week, the Royal Bank of Scotland stated it will be introducing a 4.99 times income multiple per application for all buy-to-let business.
Speaking yesterday to FTAdviser, Santander, Virgin Money, the Coventry Building Society and the Yorkshire Building Society have all confirmed that they have no plans to follow suit.
