Tough Restrictions Could Be Imposed on Irresponsible Mortgage Lenders
The Bank of England could impose tough new restrictions on the UK's mortgagemarket if lenders fail to approve mortgages in a responsible way. The Bank of England would be prepared to intervene in order to prevent banks and building societies from repeating the mistakes they made in the years leading to the credit crunch and the ensuing global economic recession.
The restrictions that the Bank could impose include higher capital requirements or caps on loan to value or loan to income ratios. However, there is currently no immediate threat to the financial stability of the housing market in the UK but the Bank of England continues to monitor the situation closely to ensure the quality of mortgage lending does not deteriorate.
However, a report from the Financial Policy Committee reveals that there is evidence that underwriting standards are beginning to slip. Large mortgages are being offered at higher loan to income ratios and these are the type of mortgages giving cause for concern regarding the financial stability of the market because of the expectation that interest rates will rise in the next 2 to 3 years.
The Financial Policy Committee is closely monitoring house price rises in relation to both affordability and sustainability as well as monitoring the underwriting standards on residential mortgages. Another area to come under scrutiny ishow much lenders rely on short-term wholesale funding, the reason for this being that this was a major factor in the demise of Northern Rock in 2007.
There are clear signs of significant activity in parts of the UK housing market and house prices are rising in parts of London, the South East and Eastern England. Some statistics show that they are already above historical averages on some metrics. However, there appears to be little to cause immediate concern when looking at long term trends and certainly underwriting standards are substantially more stringent than prior to the credit crunch.
The potential risk is that future rapid rises in house prices and increasing amounts of debt in households could be accentuated if underwriting standards on mortgage lending were to weaken in the way that they did in previous house price booms when large mortgages were being approved at high loan to value proportions. Another concern is that the second phase of the UK government's Help To Buy initiative could contribute to a house price boom as more and more first time buyers could secure a large mortgage with just a 5 per cent deposit enabling. However, the Financial Policy Committee have no powers to vary the terms of, or close, the scheme and can only make recommendations for changes.
The Bank of England is keen to show that it is keeping a very close eye on the UK's large mortgage market and that it is prepared to act to prevent mistakes from previous years being repeated. And while the Bank has no formal veto in place for the Help to Buy scheme it would be unlikely that the government would not take the Bank's advice if the housing market showed signs of overheating.
The restrictions that the Bank could impose include higher capital requirements or caps on loan to value or loan to income ratios. However, there is currently no immediate threat to the financial stability of the housing market in the UK but the Bank of England continues to monitor the situation closely to ensure the quality of mortgage lending does not deteriorate.
However, a report from the Financial Policy Committee reveals that there is evidence that underwriting standards are beginning to slip. Large mortgages are being offered at higher loan to income ratios and these are the type of mortgages giving cause for concern regarding the financial stability of the market because of the expectation that interest rates will rise in the next 2 to 3 years.
The Financial Policy Committee is closely monitoring house price rises in relation to both affordability and sustainability as well as monitoring the underwriting standards on residential mortgages. Another area to come under scrutiny ishow much lenders rely on short-term wholesale funding, the reason for this being that this was a major factor in the demise of Northern Rock in 2007.
There are clear signs of significant activity in parts of the UK housing market and house prices are rising in parts of London, the South East and Eastern England. Some statistics show that they are already above historical averages on some metrics. However, there appears to be little to cause immediate concern when looking at long term trends and certainly underwriting standards are substantially more stringent than prior to the credit crunch.
The potential risk is that future rapid rises in house prices and increasing amounts of debt in households could be accentuated if underwriting standards on mortgage lending were to weaken in the way that they did in previous house price booms when large mortgages were being approved at high loan to value proportions. Another concern is that the second phase of the UK government's Help To Buy initiative could contribute to a house price boom as more and more first time buyers could secure a large mortgage with just a 5 per cent deposit enabling. However, the Financial Policy Committee have no powers to vary the terms of, or close, the scheme and can only make recommendations for changes.
The Bank of England is keen to show that it is keeping a very close eye on the UK's large mortgage market and that it is prepared to act to prevent mistakes from previous years being repeated. And while the Bank has no formal veto in place for the Help to Buy scheme it would be unlikely that the government would not take the Bank's advice if the housing market showed signs of overheating.