The Council of Mortgage Lenders has warned the Government it risks jeopardising the success of the NewBuy scheme if it gives the Bank of England’s financial policy committee the power to cap loan-to-values and loan-to-income ratios.
Last week, the Government launched a consultation the macro-prudential powers that could be given to the Bank of England’s financial policy committee, including the power to cap mortgage loan to values.
In its paper, The Financial Services Bill: the financial policy committee’s macro-prudential tools, the Treasury is consulting on which tools the FPC should have to ensure stability.
In its fortnightly newsletter, News & Views, the CML says: “Tuesday’s announcement by the Treasury of a consultation on new macro-prudential tools presents a timely reminder of the potential conflict in objectives – albeit unintended – from different arms of government, and the need for a co-ordinated and coherent policy framework.
“More than half of those who have so far borrowed successfully through NewBuy are thought to have taken out mortgages with the maximum 95 per cent loan-to-value ratio. A macro-prudential toolkit with loan-to-value and loan-to-income caps would therefore clearly be at odds with an agenda seeking to remove unhelpful constraints on credit worthy customers and encourage lending that is sustainable, but at higher loan-to-value levels.
There have been 1,300 properties reserved through NewBuy since it’s launch in March, according to the Home Builders Federation.
Under the scheme, announced in the Government’s housing strategy in November and launched in March, lenders will offer 95 per cent LTV mortgages for new-build properties against a mortgage indemnity guarantee funded jointly by house builders and the Government.