Chancellor George Osborne is set to hand new powers to the Bank of England to regulate the mortgage market by allowing it to set loan-to-value ratio limits.
The new powers would be aimed at controlling busts and booms, by banning unsustainable mortgages and preventing another housing bubble, or stimulating more lending.
The Financial Policy Committee (FPC) at the Bank will be able to set LTV limits – for example, setting them at 75% if it feared a credit bubble, or at 95% if it wanted to encourage more lending.
Osborne told MPs in a debate on the Finance Bill that the new committee, which has already been set up but does not come into legal force until next January, is to be led by the Governor of the Bank of England.
He said: “Its job is not just to try to moderate a credit boom but to try to alleviate a credit bust.”
The committee’s job will be to prevent lenders repeating the scenario of the pre-2008 credit crunch. Then it was commonplace to offer mortgages with 125% LTVs in the belief that property prices would continue rising, along with people’s ability to repay their loans.
Osborne said that the previous light-touch regulation had been an ‘unmitigated disaster’ for the economy. He said the FCP would be ‘entrusted with the stability for the whole financial system’.
Osborne said: “In many senses, this is the bread and butter of people’s daily lives, and it is very important that we understand that, as we create these instruments of policy that don’t currently exist.”
He said of the Bank’s new powers that it did not have to use them, adding: “I should say that these are just possibilities – they are potential tools that the committee might want to use.”
News source: http://www.introducertoday.co.uk/
The new powers would be aimed at controlling busts and booms, by banning unsustainable mortgages and preventing another housing bubble, or stimulating more lending.
The Financial Policy Committee (FPC) at the Bank will be able to set LTV limits – for example, setting them at 75% if it feared a credit bubble, or at 95% if it wanted to encourage more lending.
Osborne told MPs in a debate on the Finance Bill that the new committee, which has already been set up but does not come into legal force until next January, is to be led by the Governor of the Bank of England.
He said: “Its job is not just to try to moderate a credit boom but to try to alleviate a credit bust.”
The committee’s job will be to prevent lenders repeating the scenario of the pre-2008 credit crunch. Then it was commonplace to offer mortgages with 125% LTVs in the belief that property prices would continue rising, along with people’s ability to repay their loans.
Osborne said that the previous light-touch regulation had been an ‘unmitigated disaster’ for the economy. He said the FCP would be ‘entrusted with the stability for the whole financial system’.
Osborne said: “In many senses, this is the bread and butter of people’s daily lives, and it is very important that we understand that, as we create these instruments of policy that don’t currently exist.”
He said of the Bank’s new powers that it did not have to use them, adding: “I should say that these are just possibilities – they are potential tools that the committee might want to use.”
News source: http://www.introducertoday.co.uk/
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