Another trade body has waded into the discussion on whether the Bank of England should be handed further powers in the mortgage market, urging caution and calling for a review of the existing income caps introduced following earlier intervention.
The Council of Mortgage Lenders has responded to the Treasury’s consultation on giving full direction powers to the Bank’s Financial Policy Committee over housing market tools, which include loan-to-value and debt-to-income caps.
It questioned why in practice the FPC feels it needs the power of direction, rather than its existing scope to make comply-or-explain recommendations, on loan-to-value and debt-to-income caps. It used this to force the introduction a cap on high loan-to-income multiples earlier this year.
The council said before any new powers are handed down the Treasury should see and publish a FPC review of the impact and effectiveness of the recently introduced caps in the UK. It added a parallel consultation on the use of directions as a check and balance would be required.
Alongside this, the CML said it believes that, given how heavily the owner-occupier mortgage market is now regulated, the Bank must “articulate” the regulatory gaps it feels it needs to fill.
The 39-page consultation ran from 30 October to 28 November and suggested the Bank of England’s own financial policy committee should be allowed to make macro-prudential decisions and implement them to protect both the housing market and the wider economy.
It proposed that the BOE should have the power to directly control loan-to-value and debt-to-income caps, as opposed to simply being able to make a recommendation to impose limits, which only the Prudential Regulation Authority and Financial Conduct Authority can currently do.
In the wake of the proposals the Building Societies Association warned over likely regulatory conflict in the event the Bank was given the ability to make directions, with ultimately the FCA as consumer protection regulator being disenfranchised.
Paul Broadhead 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.”
CML also stated that lending to high-net-worth individuals should be excluded from any limits on debt-to-income. It said that by contrast, it can see no justification for the exclusion of government schemes such as Help to Buy from the scope of the regulation, as currently proposed.
Finally, the organisation believes caution is needed on applying any new rules on the buy-to-let lending market, and welcomed the consultation on this, as it would be a major change with the potential for unintended consequences.
Paul Smee, CML director general, said: “Given the importance of the £1,300bn mortgage market, we recognise that it will inevitably be the sector that potentially bears the brunt of the impact of macro-prudential tools.
“We understand the need to hardwire in a clear understanding of how they would work in future, even though it is clear that no further intervention is needed under current market conditions. But the market already takes extremely seriously the FPC’s powers of recommendation, so we are not sure what powers of direction add.
He added: “If the Treasury does decide to give the FPC these special powers, we think it is crucial that these should be accompanied by an ongoing commitment to proper consultation and communication with those who would be affected by them.”
ruth.gillbe@ft.com
