Proposals to give the Bank of England’s financial policy committee more powers to curb excesses in the housing market means it could have more power than the FCA over individual decisions, Paul Broadhead has warned.
The head of mortgage policy for the Building Societies Association has warned that if HM Treasury’s proposals to allow the Bank of England’s FPC powers to cap debt-to-income are set in place, then potential conflict could arise.
He said: “The FCA is about consumer protection and affordability and the FPC is about financial stability. Someone might be able to afford a mortgage under the FCA’s mortgage market review provisions, but the FPC might want to cap debt ratios to protect the economy.
“This could create a situation where one says yes and another says no, effectively locking borrowers out of the market - and the FPC would carry the day. There is the worry now we have moved to a twin peaks regulatory regime that we now have a third arm called the FPC and nobody knows what its scope will be.”
In the 39-page consultation, The Financial Policy Committee’s Housing Market Tools, the Treasury suggests the BoE’s own financial policy committee should be allowed to make macro-prudential decisions and implement them to protect the housing market and wider economy. Currently, the BoE can merely make a recommendation to impose limits; only the PRA and the FCA can carry this out. The consultation, which will close on 28 November, proposes that the BoE should should have the power to directly control these limits for macro-prudential purposes.
The consultation will run from 30 October to 28 November.
Adviser view
Ray Boulger, senior technical director for London-based John Charcol, said: “The consultation asks what the industry feels is an appropriate definition of debt for any debt-to-income limit, but bizarrely does not seem as bothered about an appropriate definition of income.
“However, defining the latter is more subjective and will become increasingly so for those retired borrowers who have taken advantage of the new pension freedoms. Assessing income in retirement when it is mainly pension income is relatively straightforward.
“After April 2015, pensioners are likely to have an increasing proportion of their income either from savings or drawdown, so imposing a debt-to-income limit would severely discriminate against retired borrowers.”
