Bank of England governor Mark Carney has defended the Bank against suggestions it is too London-centric in its policymaking, arguing the LTI cap will boost lending outside the capital.
At a Treasury select committee hearing this morning, Carney said he has visited all 12 regions of the country and large parts of his meetings related to the local residential and commercial property market.
Last month, the Bank announced it intends to cap the proportion of mortgage loans any institution can have at a loan to income ratio of more than 4.5 times at 15 per cent.
The action was widely reported as a move to take the heat out of the housing market in London, but Carney told MPs this morning it was as much about encouraging lending outside the South East.
He said: “Two thirds mortgages above 4.5 x income today are in London and the South East. If you are a bank or a building society and you are at the 15 per cent cap you have to make six mortgages below the 4.5 x limit for everyone you make above.
“That incentivises you to make mortgages where people are demanding those types of mortgages, where people think those types of mortgages are appropriate to their circumstances and local prices.
“In other words, not just outside the circle line but outside of London and the South East. So it actually has the impact of encouraging institutions to write mortgages to individuals outside of London and the South East.”
He was responding to questions from Labour MP Pat McFadden, who said Carney had committed to not making policy for “inside the circle line”.