Bank of England seeks more powers over property market to limit loan sizes

The Bank of England has requested new powers to watch over the housing market.

There’s been talk of rising property prices ever since it was first suggested the UK could be seeing signs of economic recovery. But to try and prevent a cycle of boom and bust emerging, the Bank of England (BoE) is planning to take action.

The central bank has formally requested new powers to intervene in the property market. If it gets its way, it will limit the amount people can borrow to buy a property based on what it thinks people can afford depending on their financial circumstances.

BoE’s Financial Policy Committee is already able to provide recommendations regarding loan amounts.

In fact a few months ago it said that no more than 15 per cent of banks and building societies’ mortgages should be for values worth 4.5 times the borrower’s income or more.

As well as residential mortgages, BoE is also asking for more powers in the buy-to-let market to ensure landlords are earning at least as much from their properties as they would need to pay the interest on their mortgages. That move could help to ease the housing market, especially in high-growth areas, by stopping investors from gambling on sharp house price increases.

The cost of buying a home has continued to rise across the UK, especially in high demand areas such as London and the south-east. Critics have argued that the government’s flagship mortgage guarantee scheme, Help to Buy, has encouraged this inflation by making it easier for people to move.

BoE has made clear that it does not see the initiative as the root of housing price growth.

In a letter to chancellor George Osborne published last week, BoE governor Mark Carney said there was “no material threat” posed by the programme.

Even though prices have risen by as much as a tenth since the scheme was announced at last year’s Conservative Party conference, BoE says there is a mismatch between the two. For example, prices are rising fastest in London, but it’s one of the areas where Help to Buy uptake has been lower.

Activity in the property market has begun to show signs of easing lately, since new enforcement measures and lending restrictions were announced in June and the Financial Conduct Authority tightened its guidance on mortgage affordability. But BoE is keen to ensure the property market stays healthy and sustainable.