New powers would allow Bank of England to limit loan-to-value percentages on mortgages to prevent a housing bubble.
The Bank of England has formally asked for greater powers to limit the loan-to-value and loan-to-income multiples that lenders can offer to remortgage buyers, first time buyers and home movers.
A loan-to-value (LTV) percentage represents the percentage of the mortgage to property value after a homebuyer has placed their deposit. If your deposit is 20% then the LTV for the property is 80%.
Loan-to-income multiples are the amount a homebuyer can borrow in relation to their income and with four and a half times income or more, the lender must limit these mortgages to 15% of all applications.
Restrictions on higher multiples could limit the number of first time buyers if they only have a 5% deposit with the balance secured with a 95% loan to value mortgage from a lender.
Extra powers to control the market
Financial Policy Committee (FPC) is responsible for financial stability and although they can recommend action on loan-to-value and loan-to-income multiples they do not have the power of enforcement.
The measures would also include the buy-to-let mortgage market as well as residential mortgages.
In particular the FPC are concerned the income the landlord receives from the buy-to-let property exceeds the mortgage interest payments which lenders already require.
No new measures for Help to Buy
The Bank of England was satisfied that the Help to Buy scheme was not responsible for the house price rise.
It said that both the equity loan and mortgage guarantee parts of the scheme accounted for only 5% of the overall market.
There was no need to change the fees being charged by the lenders for Help to Buy mortgages or the house price cap.
Demand for Help to Buy, which has been created 48,393 homeowners made up of first time buyers and home movers, is not concentrated in London where house price growth has been the highest and is in demand around the country.
Help with the deposit for a new home can also come from family members as the equity release buyer can access cash using a lifetime mortgage and gifting to children and grandchild.
What are your next steps?
Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.
Learn more by using the mortgage monthly cost calculators, property value tracker chart and equity release calculator. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to spend on anything such as pay for care at home or even buy a more expensive home.
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