LTV caps could "unsettle" homebuyers

First-time buyer enquiries rose to 41% of all those received for mortgage advisers on Unbiased.co.uk in recent months, said Barrett.

The FSA ruled out LTV capping in its Mortgage Market Review draft proposals, however the Financial Services Bill, brought by the government to stave off a second credit crunch, contains a raft of new macro prudential proposals.

An FSA spokesman said in time, the two pieces of regulation would dovetail because the rules would had to work together.

"This is a Bill, not an Act and in this instance, Osborne seems to be using the LTV cap as an example, not as an agreed policy. However, this is a very forward looking price of legislation and it would be wrong to speculate at this time," he said.

LTV caps were put back on the table last night as George Osborne told MPs the Bank of England could intervene to prevent another housing crisis and curb an "unsustainable rise in house prices."

Osborne said the new Financial Policy Committee (FPC), expected to take up the reins in April, should act "symmetrically" but said the government and regulator was in "unchartered water" with plenty of detail yet to be decided.

This is only the second reading of the Financial Services Bill and the FPC, chaired by the Bank of England, will report back in March with greater detail on how the regulator will work.

A spokesperson from the CML said the two pieces of legislation operate in different spheres. The MMR is about consumer protection, where the FSB is about stability of the financial system.

"We are nervous about it. However, the proposals don't offer much flesh on the bone yet, beyond the fact this tool would have to be triggered by a financial crisis," said the spokesperson.

"It's fair to say we need to have a better understanding than we have of the rationale for it and how it fits together with the government's aspirations to help homebuyers and the mortgage market, including its new mortgage indemnity proposals," she said.

Robert Sinclair, director of the Association of Mortgage intermediaries, said: "As a tool, LTV capping makes sense if lenders are lending too much and borrowers withdrawing too much equity from their homes. Simply put, the threat of LTV capping should be enough to stop them ever havimng to use it."