U.K. Chancellor of the Exchequer George Osborne’s housing initiative doesn’t pose a risk to financial stability, the Bank of England said today as it asked the government for more powers to limit mortgage lending.
With U.K. house prices climbing to a record this year and BOE Governor Mark Carney saying the property market poses one of the biggest risks to the recovery, the Financial Policy Committee today asked the government for the ability to limit loan-to-value ratios and debt levels in the buy-to-let market.
In a letter to the chancellor published in London alongside a record of the FPC meeting held last week, Carney said there were “no material” threats from the government’s Help to Buy program that enables buyers to purchase homes with a down payment of as little as 5 percent, suggesting the key threats to the economy come from other parts of the market.
The FPC “assesses that the scheme does not pose material risks to financial stability, either directly, or through its impact on the wider housing market,” the governor wrote.
The stimulus “does not appear to have been a material driver” of house-price growth, he said.
Stimulus Plan
Osborne’s policy has been criticized by Prime Minister David Cameron’s Liberal Democrat coalition partners and former Chancellor Nigel Lawson, who say it risks fueling a property bubble.
The chancellor has asked BOE financial-stability officials to carry out an annual evaluation of the program, which aims to help first-time buyers. The statement from the Sept. 26 meeting showed that officials also wanted to extend their oversight of the property market.
The FPC has already sought to curb riskier mortgages with loan-to-income caps. Under final rules published yesterday, no more than 15 percent of mortgages offered by banks can exceed 4.5 times a borrowers’ income.
The committee agreed that the additional power to limit the proportion of high loan-to-value ratio loans “would add to its ability to tackle sources of housing risk that arise directly through lenders’ balance sheets,” according to the statement.
Such limits have been effective internationally, it said. “Substantial and rapid increases in household debt can make recessions deeper and longer, which then feed back into financial sector stability,” Jon Cunliffe, deputy governor for financial stability, said in a statement.
“We were asked the question ‘what tools do you need to deal with pressures that could come from the housing market in the U.K.?’ and we’ve answered that question.”
The Treasury will now consult on the BOE’s proposals, which would allow stability officials to intervene should they have concern that there’s a direct threat to the financial system.
Household Debt
Household debt in Britain stood at a record 1.46 trillion pounds in August, according to the BOE. Indebtedness, at about 140 percent of gross disposable income, is higher than in the U.S., Germany, France and Japan.
While the FPC said geopolitical risks “appeared more marked” in October, than at their last meeting in June, they noted that financial markets remain “remarkably resilient” to those threats. Banks remain “on a path of gradually improving resilience,” the FPC said.
Officials will bring forward proposals on the level of the so-called leverage ratio for banks by the end of October. They had originally planned to issue that number next year.
The panel also published a recommendation it had made privately to the bank and the Financial Conduct Authority in June last year, that they should promote contingency plans in case benchmarks such as the London Interbank Offered Rate became unavailable.
Publishing the recommendation was judged to be against the public interest at the time “because of the risk of precipitating the unavailability of benchmark quotes that the recommendation was seeking to avoid,” according to the statement.
The FPC closed the recommendation last month as the Financial Stability Board, chaired by Carney, had started contingency planning.
bloomberg.com
With U.K. house prices climbing to a record this year and BOE Governor Mark Carney saying the property market poses one of the biggest risks to the recovery, the Financial Policy Committee today asked the government for the ability to limit loan-to-value ratios and debt levels in the buy-to-let market.
In a letter to the chancellor published in London alongside a record of the FPC meeting held last week, Carney said there were “no material” threats from the government’s Help to Buy program that enables buyers to purchase homes with a down payment of as little as 5 percent, suggesting the key threats to the economy come from other parts of the market.
The FPC “assesses that the scheme does not pose material risks to financial stability, either directly, or through its impact on the wider housing market,” the governor wrote.
The stimulus “does not appear to have been a material driver” of house-price growth, he said.
Stimulus Plan
Osborne’s policy has been criticized by Prime Minister David Cameron’s Liberal Democrat coalition partners and former Chancellor Nigel Lawson, who say it risks fueling a property bubble.
The chancellor has asked BOE financial-stability officials to carry out an annual evaluation of the program, which aims to help first-time buyers. The statement from the Sept. 26 meeting showed that officials also wanted to extend their oversight of the property market.
The FPC has already sought to curb riskier mortgages with loan-to-income caps. Under final rules published yesterday, no more than 15 percent of mortgages offered by banks can exceed 4.5 times a borrowers’ income.
The committee agreed that the additional power to limit the proportion of high loan-to-value ratio loans “would add to its ability to tackle sources of housing risk that arise directly through lenders’ balance sheets,” according to the statement.
Such limits have been effective internationally, it said. “Substantial and rapid increases in household debt can make recessions deeper and longer, which then feed back into financial sector stability,” Jon Cunliffe, deputy governor for financial stability, said in a statement.
“We were asked the question ‘what tools do you need to deal with pressures that could come from the housing market in the U.K.?’ and we’ve answered that question.”
The Treasury will now consult on the BOE’s proposals, which would allow stability officials to intervene should they have concern that there’s a direct threat to the financial system.
Household Debt
Household debt in Britain stood at a record 1.46 trillion pounds in August, according to the BOE. Indebtedness, at about 140 percent of gross disposable income, is higher than in the U.S., Germany, France and Japan.
While the FPC said geopolitical risks “appeared more marked” in October, than at their last meeting in June, they noted that financial markets remain “remarkably resilient” to those threats. Banks remain “on a path of gradually improving resilience,” the FPC said.
Officials will bring forward proposals on the level of the so-called leverage ratio for banks by the end of October. They had originally planned to issue that number next year.
The panel also published a recommendation it had made privately to the bank and the Financial Conduct Authority in June last year, that they should promote contingency plans in case benchmarks such as the London Interbank Offered Rate became unavailable.
Publishing the recommendation was judged to be against the public interest at the time “because of the risk of precipitating the unavailability of benchmark quotes that the recommendation was seeking to avoid,” according to the statement.
The FPC closed the recommendation last month as the Financial Stability Board, chaired by Carney, had started contingency planning.
bloomberg.com
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