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A Cap On Loan To Value Ratios?

06.10.14

The Financial Policy Committee, (FPC) is looking for powers to be able to cap loan-to-value and debt-to-income ratios.

In June, the Chancellor stated that the Treasury wished to grant the FPC powers to protect the housing market from financial stability risks.

The Bank of England also said that it wishes to place a limit on residential mortgage lending “by reference to loan-to-value ratios and debt to income ratios, including interest coverage ratios in respect of buy-to-let lending.”

“These instruments would apply to all regulated lenders and would cover residential lending in both the owner-occupied and buy-to-let sectors.

“The FPC judged that taken together, these instruments were necessary, and should be sufficient, to tackle risks to financial stability that could emerge from the housing market in the future, rather than indicating likely FPC policy decisions in the short term.”

In the Bank’s first annual assessment of the Help to Buy: Mortgage Guarantee scheme, it approved the scheme and said it has prompted a large return of lenders to the higher loan-to-value market.