Lenders may be forced to cap LTVs, says Osborne
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Chancellor George Osborne says the Bank of England’s Financial Policy Committee will have the power to curb high LTVs in order to prevent an unsustainable rise in house prices.
During a House of Commons debate on the Finance Bill last night, Osborne also said the FPC would be able to do the reverse, should the UK face unwanted house price deflation.
He told the Commons: “The FPC will be able to alter the maximum LTV ratios in mortgage lending in order to curb an unsustainable rise in house prices.
“It will also be able to do the reverse, should we face unwanted house price deflation. It will also, potentially, be able to alter capital requirements for banks, in a counter-cyclical way.
“I should say that these are just possibilities; they are potential tools that the committee might want to use.”
There were rumours in 2010 that Osborne was to announce LTV caps in his Mansion House speech, something which he never did.
Last night he emphasised that measures will be independently applied, so there will be no political pressure to, say, keep a housing boom stoked up as an election approaches.
Osborne says the FPC’s job will be to act not just to moderate a credit boom but to try to alleviate a credit bust.
He says the precise tools that the government will give the FPC have yet to be determined and it will seek the approval of both houses of Parliament before it passes those tools over.
He adds: “I freely accept that we are in largely uncharted policy making territory, here or anywhere in the world. Many other jurisdictions are considering such measures, but we are ahead of most of them.
“Surely the experiment of making no attempt to moderate the credit cycle—letting the bubbles grow and burst, then cleaning up afterwards—has been an unmitigated disaster, and we would be failing if we did not look for an alternative.”
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Readers' comments (7)
Mike Cullen | 7 Feb 2012 12:58 pm
While I think George Osborne has done what needed doing, surely with MMR and the various input from regulators, why did he feel the need to raise this. Flies in the face of the govt MIG suggestion and jsut sends more alarm to FTB's.
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Anonymous | 7 Feb 2012 1:21 pm
Horse. Stable Door. Bolted.
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Dale Robinson | 7 Feb 2012 1:27 pm
It is encouraging to see consideration being given to increasing the powers of the FPC, clearly the use of interest rates alone is NOT enough to boost the housing market/economy.
Some relaxation of the capital adequacey requirements for higher LTV mortgages at this point in the cycle, can only help boost the market and encourage more lenders back into the market at 85% or above. The lack of first time buyers is the single biggest issue for the housing market.
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Des Platt | 7 Feb 2012 1:53 pm
All high LTVs will do is return us to the situation where prices are out of reality as they were foutr years ago. There are good traditional reasons why there should be a decent contribution to a borrowing for any reason. I can hear howls of protest from brokers.
I see clients with good incomes who have no reason not to be able to save other than that they spend their money on consumer junk.In 1984, my monthly pay was £400,I gave my parents £120 per month ( a much higher percentage than most pay keep now) and still managed to save 25% of my £25000 purchase. Yes, I know it is tougher for people renting but the majority of FTBs I see without deposit are with parents.And incidentally, I think the difficulty of getting 90% mortgages has been overstated. I've yet to have one turned down for an employed case.
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Innocent Bystander | 7 Feb 2012 7:20 pm
They may be able to reduce the LTV's or increase them but altering capital adequacy is unlikely unless we come out of the EU since those are the rules we have to follow!!!!!!!
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Banksider | 8 Feb 2012 8:28 am
When is somebody going to change the old world rhetoric and point out that buying a house rather that renting could mean financial ruin for FTBs, not fortune, in a market where interest rates are being kept artificially low by government intervention? Probably never. All the vested interests are in house buying.
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Roberto Birquet | 13 Feb 2012 3:18 pm
What is not mentioned in all this praise is that the Bank of England has been an absolute disaster for the housing market. And by the way, I do not equate high prices with a good housing market. Far from it.
The BoE set interest rates, not the govt. And they were too low for too long, allowing the bubble to expand uncontrollably. It actually started raising rates in 2007, when the bubble had already passed clearly dangerous proportions.
Now, we consider further power to this useless institution. And the little part about allowing the bank to lower the deposit required for a house if prices are not rising fast enough.
The only rational path to go in keeping prices high; or Heaven Forbid, even higher, would be to destroy the value of money, which the bank has also embarked upon - by printing money/buying gilts, and giving that cash to the very institutions (the banks) that caused so much of the mess in the British economy in the first place. What about moral hazard?
High house prices mean one of the following for 20-30 somethings.
1. Huge debt and not enough money top save for your pension (drain on society)
2. Never buying, and require state housing in retirement (drain on society)
3. Living 100-200 miles from work, insufficient home life, leading to poor education of children &/or inefficient worker (drain on society)
The ridiculous attempts to keep the bubble inflated are going to destroy our country. Who among you gives a damn?
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