View more on these topics

Loan-to-income caps could help curtail bad lending says Treasury

ANDREW STRANGE: SHIFT IN POWER IS WORRYING
ANDREW STRANGE: SHIFT IN POWER IS WORRYING

Loan-to-incomes caps are the ans-wer to reigning in irresponsible len-ding not loan-to-value limits, says the Treasury.

Last week the Treasury released a consultation paper on the proposed role of the Consumer Protection and Markets Authority, which it has renamed the Financial Conduct Authority.

In the paper it suggests an LTV cap could be unrealistic and it might be worthwhile to look at loan-to-income caps.

The paper says: “During periods of buoyancy in the housing market, rising property prices can facilitate additional borrowing and competit-ive pressures can encourage increases in LTV ratios on new mortgages.

“If commercial or residential property prices subsequently decline, balance sheets can become stretched and defaults can increase.

“Some jurisdictions such as Hong Kong have used maximum LTV ratios in an effort to discourage unsustainable mortgage lending and improve the resilience of their banking sectors.”

But it says enforcing LTV limits on commercial real estate could be undermined by cross-border lending and there may be an alternative means of achieving the same effect on the property market.

The paper adds: ” For example, by varying risk weights on certain types of mortgage lending and so the amount of capital banks must hold against their mortgage lending. Alternatively, loan-to-income limits could also be considered.”

The FCA will also have the power to ban a product it feels is too risky and to name firms and individuals being investigated for wrongdoing, before any action has been taken.

At present the FSA does not name firms until it has taken enforcement action.

Andrew Strange, director of policy at the Association of Independent Financial Advisers, is concerned about some of the pro-posals, particularly naming firms under preliminary investigation.

He says: “This is a worrying shift towards guilty until proved innocent. We are also concerned about the extent of wide ranging powers covering not only conduct of busi-ness, but also the ability to ban products.”

Recommended

Stephen Smith, Director of housing, Legal & General

Challenges of a changing marketplace

Providing financial advice in an environment of a housing shortage, high prices, an increasing rental sector, regulation changes and a generation of advanced technology is certainly going to keep us busy

PAUL NYE, BUSINESS DEVELOPMENT DIRECTOR, STONEBRIDGE GROUP

ARs need support to grow their business

Many appointed representative firms are crying out for development support to maximise their business potential in difficult trading conditions. Often ARs struggle to grow their businesses without support from their current network. So why is support so hard to come by when it makes such good business sense? It seems many networks fail to invest […]

CONOR MURPHY, MANAGING DIRECTOR, CAPRICORN

Fixed arrangement fees could help B2L

Mortgage arrangement fees were introduced on some mortgage products as a genuine way for lenders to cover costs associated with administering mortgage applications. But the advent of the credit crunch saw fees on many products increase dramatically. Thankfully over the past 12-18 months these have gradually reduced as more lenders have returned to the marketplace. […]

Newsletter

News and expert analysis straight to your inbox

Sign up