Bank of England requests LTI cap powers

The Bank of England has requested powers to require lenders to place limits on residential mortgage lending, including BTL, in respect of LTVs and debt to income ratios.

Related topics:  Mortgages
Amy Loddington
2nd October 2014
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Currently the FPC can make recommendations on LTI ratios, but does not have the power to enforce them.

In June the FPC recommended that only 15% of new mortgages should have an LTI ratio greater than 4.5.

The Financial Policy Committee, who published a statement today, is also publishing a letter to the Chancellor giving its first assessment of the impact of the Help to Buy: Mortgage Guarantee Scheme, including, as requested, whether the parameters of the scheme – the house price cap for eligibility in the scheme and the fee charged to lenders – remain appropriate. The Committee does not see a case for changing the fee or the house price cap on financial stability grounds at this point.

Peter Williams, Executive Director of the Intermediary Mortgage Lenders Association, comments:

“The Financial Policy Committee’s recommendation that HM Treasury allow it to direct – if necessary – the Prudential Regulation Authority and the Financial Conduct Authority to require lenders to place limits on residential mortgage lending are an inevitable consequence of the Chancellor announcing in June that he wanted to grant the FPC additional powers to guard against financial stability risks from the housing market.

“However, with the mortgage market still finding its way back to normality after the tribulations of the global financial crisis and consumers currently adjusting to the new MMR regime, we need to be careful to ensure the sector’s recovery is not stifled by over-regulation. It is reassuring that the powers that be are attempting to prevent the mortgage market making some of the mistakes it made before the crash, but lenders must be still given some legroom to be creative and flexible in their attempts to help consumers.

“Loan-to-value ratios and debt-to-income ratios are obvious targets for the regulators, but we must sure the green shoots of recovery are given room to grow. It is also good news that the FPC is evaluating whether the parameters of the Help to Buy scheme remain appropriate as we need to ensure that the initiative isn’t artificially skewing the market.” 
 

Simon Crone, Vice President – Mortgage Insurance Europe for Genworth, comments:

“Today’s announcement from the Bank of England shows that housing remains a critical issue to the stability of the economy, demonstrating that there is still a need for the Help to Buy Mortgage Guarantee scheme. While we welcome any greater clarity provided, the fact remains that Help to Buy 2 is only a temporary and limited solution.

“The government’s mortgage guarantee scheme has made gains in encouraging a return to high loan to value mortgage products for first time buyers but once the scheme ends in 2017, the progress made in offering high LTV loans for first time buyers will erode as lenders lack the security that would encourage them to continue lending at this rate.

“The market needs a clear exit strategy from the scheme to ensure that a normal, healthy supply of high LTV lending is sustained. The private mortgage insurance market has been vocal in its ability to take over from the scheme, removing any risk to tax payers while maintaining prudent lending. Ultimately, this would help to increase first time buyer access to homeownership by de-risking high LTV lending.

“It used to be the norm for first time buyers to start out with a 5% deposit: however, this has now grown closer to 20%. First time buyers therefore face what for many is an insurmountable amount to save – especially when you factor in rising house prices – leading many to be shut out of the market with little hope of ever owning their own home. As a result of fewer 95% LTV loans the number of buyers between 18 and 30 remains at an all-time low, highlighting the scale of a rapidly growing crisis in homeownership.

“Cameron’s newly announced cut-price Help to Buy scheme does offer some help in allowing aspiring buyers to save enough to step onto the property ladder and boosting the supply of affordable rental accommodation, but again this is only a finite solution. Although insufficient construction and supply is part of the challenge facing the housing market, access to mortgage finance and high LTV lending remains the critical factor in solving the UK’s housing crisis. It is time for the government to clarify a clear exit strategy for these schemes, allowing mortgage insurance to take on some of this responsibility and maintain access to the property market for first-time buyers."

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