Central bank to get new powers of direction over UK housing market

Taylor Scott International News

The UK government has confirmed that the Bank of England’s Financial Policy Committee will have new powers of direction over the country’s housing market. City Minister Andrea Leadsom confirmed that the FPC will be given new tools to ensure the ongoing stability of the housing market through setting limits on debt to income ratios and loan to value ratios for mortgages. The FPC recommended it be given these powers after the Chancellor announced his intention in his 2014 Mansion House speech to give the FPC the necessary powers to tackle future housing market risks. The government’s announcement follows separate Treasury consultations on granting the Bank of England additional powers to address any emerging risks to financial stability from the housing market. ‘The Bank of England will have further powers to safeguard the stability of Britain’s financial system from any future risks posed by our housing market or banks,’ said Chancellor George Osborne. ‘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 this announcement of new powers for the Bank of England shows our determination to achieve this,’ he explained. The additional powers over the housing market are commonly held by the Bank’s counterparts in other countries. Loan to value limits are used extensively in countries including Canada, New Zealand and Norway. Several other countries, including the Netherlands, Switzerland and the US have already introduced leverage requirements for systemic firms. The legislation sets out the new powers of direction that the government will grant the FPC over loan to value limits and debt to income limits for owner occupied mortgages, as requested by the FPC in October 2014. The government intends to consult separately early in the new Parliament on the FPC’s recommendations for it to have new powers over the buy to let market, with a view to building an in depth evidence base on how the operation of the UK buy to let housing market may carry risks to financial stability. According to Andrew Tyrie MP, chairman of the Treasury Committee and former Chairman of the Parliamentary Commission on Banking Standards, said that the setting of limits on debt to income ratios and loan to value ratios for mortgages 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,’ he pointed out. Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), that the Bank must think very carefully before bringing its new powers of direction to bear on the… Continue reading →

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