FSA hints again at LTV cap
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The Financial Services Authority has once again suggested that a cap on higher LTVs could be implemented as part of wider regulatory reforms.
In a speech last night at Mansion House, Adair Turner, chairman of the FSA, told the audience it will be the job of the Financial Policy Committee to constrain credit booms before they end in busts.
He says part of this could be to impose limits on maximum LTVs.
Speaking about how the FPC will constrain credit booms, he says: “It will certainly include countercyclical capital buffers, increased to slow down excessive credit growth, reduced to support lending in recessions.
“And it may include limits on allowable contracts, such as maximum LTV ratios, rather than constraints imposed solely on aggregate lender balance sheets.”
In August Monetary Policy Committee member and deputy governor of the Bank of England Charles Bean said one option would be to impose maximum LTVs on mortgages.
The FPC will be set up in the next two years and its job will be to monitor the economy, looking at the macro-economic and financial issues that may threaten stability.
Mervyn King, the governor of the Bank of England, will chair it.
Turner says the FPC will need to make unpopular decisions, but this will only be possible within the context of a public debate which recognises that constraints on easy credit are in everybody’s best interests.
He says taking away the punch bowl however will not always be popular.
He adds: “At various points in the cycle it could mean restricting mortgage credit when individuals are buying homes in a rising market and limiting credit to real estate investors who enjoy the rising prices which easy credit itself helps produce.”
He says it will try to strike a balance, recognising that any regulation which protects some customers from taking on mortgages they cannot afford will inevitably affect others seeking to make sensible, affordable choices.
Within two years the FSA will be divided between a Prudential Regulatory Authority and a Consumer Protection and Markets Authority, with the PRA a subsidiary of the Bank and the CMPA an independent authority.
Turner says by spring it will move to an internal organisation which distinguishes the two separate functions of prudential and conduct regulation and supervision.
And over the subsequent year it will identify any problems arising from the split.
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Readers' comments (15)
colin | 22 Sep 2010 8:16 am
here we go again, yet another after the horse has bolted attempt to shut the stable door.
Do the FSA not realise that lenders have pretty much already got this in situ with max 90% lending!!!!!!!
always an over reaction, stiffle innovation.....a blanket approach is not the way forward. It would be better to impose a minimum earnings collar or insist on some sort of overpayment to bring inside a certain LTV within say the first 5 years. Lets innovate not strangulate
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Anonymous | 22 Sep 2010 8:25 am
would this just not encourage the return of the 'Together' mortgage where you would get say max 85% and 10% personal loan?
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robert Lundon | 22 Sep 2010 9:10 am
the only person that capped LTV protects is the lender. I am sure that most people who own there home now had high LTV to start with. People have to learn to remember that when you buy a home it is so you have a place to live not an investment if at the end of the day it turns into a good investment thats a bonus
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Paul Jones | 22 Sep 2010 9:22 am
The mortgage market for brokers is DEAD. All market indications point to the extinction of the broker. Get out while you can and get a new career. There's no point being in denial anymore and surviving on a pittance hoping that income levels will return in a few years. The market will not recover until 2013 at the earliest by which time interest only will be banned so even less ftb's,ltv's will be capped even more than now, procuration fees will be reduced or abolished, banks will continue to offer and promote much better direct deals, price comparison sites will grow and become more sophisticated and there will never be a specialist market again which was the only reason the broker market existed in the first place. Being a broker is like a broken pencil-POINTLESS
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Anonymous | 22 Sep 2010 9:43 am
All this will do is grind the housing market to a halt, first time buyers already struggle to meet the demands of lenders updated LTV figures. Never mind having to potentially adhere to maximum 25 year C&I payments. Those who are already on the property ladder and servicing their mortgage addequately (but at a higher loan to value) won't be able to move onwards. No buyers, no sellers, stale mate. Get used to your homes folks you might be there quite a while.
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David | 22 Sep 2010 9:44 am
What on earth is this government doing by allowing this useless regulator to continue to wreck the economy. First time buyers need to get back on the housing ladder and one of the main problems is that they are having great difficulty in raising deposits, unless of course they have wealthy parents, and when they can they are being ripped off with extortionate interest rates. Mr Osborne and Mr Cammeron you are rapidly loosing many peoples support. Get a grip and get rid once and for all!
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Dan McGeehan | 22 Sep 2010 9:44 am
Lenders should be allowed to offer high LTV deals as long as they keep them on their balance sheet. Northern rock's trouble came from their business model relying on wholesale funding not due to high LTV's. Lenders should be free to offer high LTV provided they are underwritten properly, the income multiple's are restricted and the mortgage must be on repayment. The lenders that currently offer 90% are doing this and it accounts for less than 2% of the market so will impose restrictions on this further?
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Chris | 22 Sep 2010 9:45 am
Absolute nonsense. How on earth does a Loan to Value cap protect the consumer in terms of stopping them from borrowing too much. The total amount borrowed v their income is the only relevant factor. Are they saying if you have a 50% deposit that it makes it easier to pay the mortgage you have, no of course it does not. The only people being protected with low LTV are the lenders. If a client puts 30% down on a £100000 house and 12 months later, through no fault of his own his house reduces in value to £70000, he has lost £30000 and now in theory has a 100% mortgage. Had he put a 15% deposit down He has still lost £30000 because the lender (if they repossessed or the house was sold) would still want its full £85000 back. However there are some clients who may go bankrupt in which case the lender will not get its money back. But all this will only be relevant if the client is unable to make the repayments and the LTV has no bearing on that at all. In fact I agree with a previous writer that it will only encourage more unsecured borrowing which will be much more expensive and contribute to potential financial difficulty. The only people to benefit from low LTV are the banks. Unsecured borrowing has been the problem in recent years not mortgages. People have been taking out loans and credit cards and HP on cars and are paying more on those than the mortgage, but because they do not want the car taken away they miss mortgage repayments. The stats then show that clients have mortgage arrears and the mortgage industry cops for bad press for miss-selling mortgages. Does no one in authority see further than their nose ?
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Dave | 22 Sep 2010 10:00 am
Does anyone else think that Canary Wharf is actually situated in a parallel universe - because they don't live in the real world!
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Maurice Edgington | 22 Sep 2010 10:01 am
Unfortunately the real problem may get overlooked in order to find an easy solution. Credit card and personal loan debt is really where there should be more controls. It is far too easy to get very expensive credit on cards. From my experience in the problem mortgages sector I see that most credit pressures that cause people to go into arrears then miss mortgage payments is down to excessive credit limits on loans and credit cards. Almost all credit of this type is provided to people without any affordability checks, income verification or consideration for the amount of credit commitments alraedy in place. I believe this is a matter for a higher authority than the FSA. It should be addressed directly by the Government and as soon as possible.
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