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IMLA: FPC must use LTI powers wisely

Robyn Hall

February 2, 2015

Following a consultation in November the Treasury has officially granted the FPC powers to cap loan to values and loan to income ratios “to guard against any future risks to financial stability”.

But Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said: “The Bank must think very carefully before bringing its new powers of direction to bear on the mortgage market – particularly in the short term.

“Recent changes to mortgage regulations have significantly reshaped the market and the full impacts on consumers are still emerging in the wake of April’s MMR implementation and October’s FPC actions.

“There is every possibility of the pendulum swinging too far unless the market has time to fully take these on board.”

He added: “The recent slowing of house price growth is an encouraging sign that the Bank may not need to deploy these extra powers to guard against financial risks.

“With further regulatory changes coming down the line from Europe, we must avoid a situation where the host of checks and balances now in place fundamentally reshapes the mortgage market and in so doing chokes off people’s legitimate aspirations to own a home when they can clearly afford a mortgage to do so.

“The announcement puts the bank firmly in the firing line and it must use its new powers extremely prudently.”

Previously the FPC was only able to recommend policies, which it did in June 2014, as it advised that from October 1 lenders must limit lending above an LTI ratio of 4.5 to 15% of total residential lending.

In November both IMLA and the Council of Mortgage Lenders questioned whether the FPC should gain such powers, as the CML suggested that another consultative system be put in place to keep the FPC in check.

Andrew Tyrie, Treasury select committee chair, said: “This power will be a valuable addition to the Bank’s toolkit for improving the safety of the financial system.

“The setting of limits on debt-to-income ratios and loan-to-value ratios for mortgages could help to tackle the economic and financial stability risks posed by an overheating housing market.

“However, there are limits to what can be expected of regulators: the identification of the cycle is an inherently extremely tough task. It could turn out to be insuperable.”

And George Osborne, Chancellor of the Exchequer, added: “Curbing Britain’s age-old vulnerability to banking and housing booms is one of the goals I recently set for the next two decades of Britain’s economic policy, and today’s announcement of new powers for the Bank of England – which we’ve put back at the heart of safeguarding financial stability – shows our determination to achieve this.

“It’s part of a formidable agenda for economic policy over the years ahead, a long term economic plan for Britain that delivers for hardworking people.”


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