BoE should ease 3% mortgage affordability tests: CML

BoE should ease 3% mortgage affordability tests: CML
We do not share the Bank’s assessment that its policies have had little adverse impact on the housing market to date.

The CML has urged the Bank of England's financial policy committee to ease back on rules that require mortgage affordability to be assessed on the basis that interest rates could rise by 3% during the first five years.

The CML has raised concerns that the stance could be "unnecessarily restrictive and potentially adverse" for housing activity levels and UK households.

It highlighted that in 2014 when the rules were introduced, a Bank of England consultation paper anticipated that house purchase approvals would now be averaging 270,000 each quarter, whereas the latest three-month total is only 205,000.

The Council also argued that the "interest rate environment has changed materially" since 2014.


The CML 'news & views' article continued: "Our concerns about the hardening stance of the FPC are magnified because we do not share the Bank’s assessment that its policies have had little adverse impact on the housing market to date.

"We think it is more plausible than not that the Bank’s measures have contributed to lower levels of house purchase activity and made it harder to transact for older borrowers and for households with single incomes."

The Council also noted that house-moving activity represents the "one major sector where we have seen almost no recovery post-crisis", adding that the FPC may be limiting credit risks at the expense of "shrinking overall activity and contributing to a less diverse cohort of borrowers".

The CML concluded: "Given so many changes, we are pleased to see that the Bank has committed to undertake a review of its housing powers this year. In our view, this affords the Bank an overdue opportunity to re-engage with the CML, mortgage lenders and other industry stakeholders, and to re-invigorate public debate about future macro-prudential policy direction and associated trade-offs."

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