Morning Papers: Bank given power to rein in risky lending

Chancellor George Osborne is set to give the Bank of England specific legal powers to rein in risky mortgage lending following criticism that he is not protecting the economy.

The Financial Times reports that Mr Osborne wants to give the BoE political cover to carry out sensitive operations in the housing market, including possibly limiting the amount of money people can borrow to buy a new home.

The chancellor’s move, which was announced in his annual Mansion House speech last night (12 June), is intended as signal that he expects Mark Carney, BoE governor, and his colleagues to do whatever is necessary to prevent a housing bubble.

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Mr Osborne said: “Our economic plan has brought stability and security and I’m not going to let anything undermine that.

“So I am acting against future risks in the housing market by today giving the Bank of England new powers to intervene and control the size of mortgages compared to family incomes and house values.”

Earlier this month, the European Commission called on the chancellor in a report to “deploy appropriate measures to respond to the rapid increases in property prices, notably in London, for example by adjusting the Help to Buy 2 scheme and mitigating risks related to high mortgage indebtedness”.

The coalition must take “action” to increase housing supply, the EC report added.

Attention has focused on high income multiple loans, which governor Mark Carney singled out in a recent television interview and which the IMF referenced in a warning on housing market risks.

Lloyds and Royal Bank of Scotland, both backed by the UK government, have already acted to curb high income multiples in London, where price inflation is highest, by imposing a cap of four times earnings for homes worth more than £500,000.

On supply, Mr Osborne also announced changes to planning rules to speed up development of ‘brownfield’ sites, with some £500m of public money put aside to help with the decontamination of land.

The chancellor’s promise to invigorate housebuilding “is a response to Mr Carney’s plea last month for politicians to tackle shortages”, the FT said.

Carney warns rate rise sooner than expected

Mark Carney has warned interest rates could rise from the historic 0.5 per cent low “sooner than markets currently expect”, the Financial Times reports.

Mr Carney, who has been governor of the Bank of England for almost a year, stressed last night in his Mansion House speech that the widely anticipated action by the central bank this month to cool the housing market will not be a substitute for gradual interest rate rises.

In August 2013, Mr Carney issued ‘forward guidance’ that interest rates would be kept on hold until unemployment falls below 7 per cent. At the time, the unemployment rate stood at 7.8 per cent. In August, commentators warned this could take us past 2016.

This week, FTAdviser sister title FastFT reported the UK’s headline rate of unemployment fell to 6.6 per cent in the three months through April.