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Govt drops plans for BoE to cap LTVs

Treasury 480

The Government has dropped proposals that would allow the Bank of England to cap loan-to-value ratios for mortgages.

Last week, the House of Commons approved the Bank of England Act 1998 (Macro-prudential measures) Order 2013. It allows the Financial Policy Committe to issue both recommendations and directions to the Prudential Regulation Authority and Financial Conduct Authority to introduce certain macro-prudential tools.

A Treasury consultation into macro-prudential tools closed in December and the Government has been at the centre of a heated debate over the last year on whether to give the FPC the power to cap LTVs.

Chancellor George Osborne and the International Monetary Fund agreed with the principle of an LTV cap but the FPC and Bank of England governor Sir Mervyn King argued the power is too political and needs parliamentary approval.

Last week, Treasury financial secretary Greg Clark told the Commons: “It is important to note that the power to make recommendations and give directions is available to the FPC, but that there is no requirement that it should get in the business of micro-managing these sectors.”

Labour MP and Treasury select committee member George Mudie said: “One of the macro-prudential tools discussed and dropped was LTV mortgages.

“Most of us were pleased when that was dropped, but it was a runner and was being discussed in FSA circles for some 18 months. I am certain, from watching the industry, that it had a great effect on the industry’s decisions, as it was trying to second-guess the FSA.”

Building Societies Association head of external affairs Hilary McVitty says: “We have never believed the FPC should have the power to cap LTVs and it doesn’t look like it is going to happen.

“There are potential problems if the Government does it by the back door by applying targeted capital requirements on higher LTV loans. It could have the same effect and lead to unintended consequences for borrowers, especially first-time buyers.”

The Council of Mortgage Lenders says it would expect a proper debate if an LTV cap is proposed.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. John Constable 4th March 2013 at 4:07 pm

    At the height of the property bubble in 2008, Gordon Brown stood there and chortled that the average house price was now around £190K.

    That was 8-9 times average earnings in some parts of the country.

    Too damn right its ‘political’, that’s the problem.

  2. Becoming a headcase IFA 5th March 2013 at 8:39 am

    A lot of people are desperate to keep property values from dropping in this country, even though the ridiculous current valuations are making it so hard for young people to buy. If we have a crash, like we did in the late 80’s and early 90’s, on top of the current poor economic conditions things will really hit the fan.

    Just another example of the awful management of this country by labour. And, let’s face it, the conservatives and liberals would have made a similar hash of things if they had been in power.

    There is really nobody sensible to vote for now.

  3. House prices are not only difficult for first time buyers. There are now thousands of young people, who bought their first home in the last five years, who are now stuck in the no mans land of negative equity.

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