Government rolls out consultation on the Bank of England’s powers over the UK’s housing market

30th October 2014

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The Government has launched its consultation on which powers the Bank of England (BoE) should have over the UK’s housing market.

Back in June, the Chancellor of the Exchequer George Osborne announced that he was determined to work with the BoE to ensure it had appropriate powers over the market to maintain its stability.

Earlier this month, the BoE requested a range of powers including the ability to set a debt to income ratio for mortgages and control loan to value ratios.

Currently, the Bank can only recommend that such a limit is put in place. The power to put in place these limits lies with the Prudential Regulation Authority (PRA) and the City watchdog, the Financial Conduct Authority (FCA).

As a result the government has rolled out a consultation set to examine whether or not the Financial Policy Committee (FPC) should have the power to directly control these limits for macro-prudential purposes. The consultation will run from 30 October to 28 November 2014.

Commenting on the consultation Osborne said: “Ensuring the stability of the UK housing market is a crucial part of this government’s long term economic plan, and I have been clear that the independent Bank of England should have the tools it needs to do this.

“That’s why the government is consulting on this issue, to ensure that we can bring forward appropriate legislation to give the Bank the powers it needs.”

In June, the Bank issued a recommendation over mortgage lending limits, with new regulations introduced earlier this month capping the number of loans above 4.5 times income which banks can offer.

The powers that the BoE is requesting are commonly held by its counterparts in other countries. Loan to value controls are used extensively in countries including Canada, New Zealand and Norway, while both the Hong Kong and South Korea have used debt to income ratios.

Osborne added: “The consultation document states that the government is proposing that the Bank is granted powers of direction for loan to value limits and debt to income limits for owner-occupied mortgages. The government is particularly interested to hear what consumers and the industry feels is an appropriate definition of debt for these purposes.

“The government intends to consult separately in 2015 on the Bank’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.”

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