Market Thoughts column: The lowdown on latest Bank of England policies

Mark Robinson is chief executive of Market Harborough Building Society.
Mark Robinson is chief executive of Market Harborough Building Society.

The Bank of England announced its new policy initiatives on the housing market last Thursday.

In doing so, the Bank was at pains to explain them as preventative measures to avoid matters getting out of hand.

If you didn’t see the plans, they comprise two main interventions on mortgages.

Firstly, on affordability, lenders should apply an interest rate stress test, as if the Bank Rate were to be three per cent higher than the rate at origination during the first five years of a new mortgage.

Secondly, lenders which write more than £100 million of residential mortgage business annually do not advance more than 15 per cent of their new residential mortgages at a loan-to-income ratio at, or greater than, 4.5. At the same time the Treasury announced changes to the Help-to-Buy mortgage guarantee loan scheme.

No new loans at, or above, 4.5 times the borrower’s income can be included in the scheme.

These measures will act on the supply side of funding and may impact more on the London market than they will on the rest of the UK.

It is estimated that recently in London 19 per cent of loans were made at more than 4.5 times income compared to nine per cent elsewhere.

A limit of 15 per cent therefore seems a modest constraint.

On the stress test measure, +3 per cent is little different from that many lenders already use under the recent provisions of the Mortgage Market Review.

So, in summary, the regions shouldn’t worry too much about the fragile recovery in house prices being stamped out.

We will still be lending as before.

But these steps may well foreshadow an era of interventions which create a less speculative housing market.

That has got to be a good thing.

Column by Mark Robinson, who is chief executive of Market Harborough Building Society.

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