According to the Telegraph story [Read more], The Chancellor is set to hand a host of new controls to the Bank to prevent another financial crisis.
The paper reports that the reforms set to be announced in the Chancellor’s first Mansion House speech tonight will include restrictions on the loan-to-value ratios offered to customers. The paper suggests the restrictions will also curb house price booms stimulated by excessive lending.
The CML said more “logical discussion” of what objectives such a measure would be designed to achieve must take place.
It warned that the characteristics of today’s market meant risky mortgage lending was unlikely with further international measures on the way likely to dampen down the appetite for risk.
CML director general, Michael Coogan, said: “We need to remember that in the UK it was not risky lending that caused the banking problems, it was banks’ inability to refinance their borrowings due to the shutdown of global financial markets.
“We also need to remember that what is currently bothering most people about the mortgage market isn’t high-risk lending, but the fact that lending is so constrained to low-risk borrowers that it may be making it more difficult for the economy to grow as individuals and businesses find it more difficult than they would wish to borrow.”
Coogan added it may make sense for the BoE to be given wider-ranging tools, but asaid that lender’s capital adequacy rules had already achieved many of these aims.
He added: “Policymakers need to be very careful to avoid trying to solve the wrong problems – the much bigger problem for the mortgage market for the foreseeable future will be in raising enough money to lend, not the risk of stoking asset bubbles through over-generous lending.”
The CML estimates that around 2.5 million mortgages in the UK represent Loan to Value ratios of higher than 75%.
Jonathan Cornell, spokesman for broker First Action Finance, said the number of high LTV loans is already limited and they are generally cautiously underwritten.
“The Financial Services Authority recent Mortgage Market Review already proposed maximum loan to values and incomes but based on the responses it is currently unlikely to impose any restrictions,” he said.
He added: “By preventing certain types of borrowers getting mortgages the Bank of England may be overstepping its role as a financial regulator and moving towards being a social regulator. Clearly it is important for the Chancellor to put in place measures to prevent future lending excesses however we are years away from needing to even consider implementing such schemes.”
