LONDON: The Bank of England sought to put the brakes on Britain’s surging housing market yesterday by announcing a cap on home loans and tougher checks on whether borrowers can repay their mortgages.
The Bank’s Financial Policy Committee said that from October, it would only allow 15 percent of new mortgages to be at multiples higher than 4.5 times a borrowers’ income.
Britain’s housing market has seen a stellar recovery thanks to record-low interest rates, falling unemployment and government-sponsored schemes. But policymakers have become increasingly concerned about momentum in the housing market, with prices growing at around 10 percent annually in Britain and at nearly double that rate in London where cash buyers from abroad are also fuelling demand. “(These measures) will prevent lending getting too far ahead of income growth and they’ll prevent a slide into riskier lending and higher indebtedness that could undermine the economic expansion over the medium term,” BoE Governor Mark Carney said at a news conference to present the measures.
Share prices in British house building companies rose by more than 5 percent after markets judged the measures were less harsh than feared, and British government bond prices hit a day’s low as Carney said the measures would not affect rates.
“They’re less likely to have implications for the path of monetary policy which currently anticipates limited and gradual rate rises over the forecast horizon,” he said.
The Council of Mortgage Lenders said the steps were more likely to affect lending in London — where almost a fifth of loans are at loan-to-income ratios above 4.5 — than in the rest of the country, where the cap would affect less than 10 percent of loans.
“Additional housing supply to help correct the imbalance between supply and demand is the main way of relieving affordability pressure and household indebtedness attributable to mortgage borrowing over the long term,” the CML said. Reuters