New powers for BofE to ‘curb housing booms’ – chancellor

New powers for BofE to ‘curb housing booms’ – chancellor

The government has given the Bank of England’s financial policy committee powers over the housing market to guard against any future risks to financial stability, the chancellor George Osborne has announced.

He said: “Curbing Britain’s age-old vulnerability to banking and housing booms is one of the goals I recently set for the next two decades of Britain’s economic policy, and today’s announcement of new powers for the FPC shows our determination to achieve this.”

The move is aimed at ensuring the stability of the housing market by setting limits on debt-to-income ratios and loan-to-value ratios for owner-occupier mortgages.

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City minister Andrea Leadsom said: “By acting now, we’re helping to protect families and businesses up and down the country from any financial shocks in years to come.”

Andrew Tyrie, chairman of the Treasury Committee, said the move could help to tackle the economic and financial stability risks posed by an overheating housing market.

“However, there are limits to what can be expected of regulators: the identification of the cycle is an inherently extremely tough task. It could turn out to be insuperable.

“These new powers will affect millions of taxpayers and households across the country. The FPC is still largely unknown to the public and it is therefore crucial that it is transparent about how it reaches its decisions.”

Kevin Doran, chief investment officer for wealth manager Brown Shipley, said: “Make no mistake, no matter how you dress it up, the formalisation of powers given to the Bank formally acknowledges that interest rates in the UK ought to be raised.

“Interest rates have been kept too low for too long, leading to detrimental outcomes, namely greater interference in the form of macroprudential policy. It has also led to a growing chasm between asset-price inflation and real-world inflation.”

Adviser View

Mike Richards, mortgage broker at London-based Mortgage Concepts Associates, said: “Lenders set the ratios and should interpret guidelines themselves. They have followed government guidelines and have been sensible enough, so should not be told what to do.

“Many lenders have reduced income multiples and a lot have increased the buy-to-let stress rates to five, the majority more than five. This move could restrict lending and what people can borrow, so is not great for the market.”