In its latest report on the UK economy the IMF said that the Bank of England’s Financial Policy Committee (FPC) should be given power to cap LTV levels in order to prevent property price bubbles.
Chancellor George Osborne had floated the idea in February, saying that giving these powers to the Bank could help prevent another housing crisis.
However industry reaction was mixed, with suggestions that a cap could put off homebuyers, particularly first-time buyers.
The IMF report said: “A broader macro prudential toolkit for the FPC is desirable. In particular, the power to limit loan-to-value and loan-to-income ratios is essential, as higher capital requirements alone are likely to be insufficient to restrain property bubbles.
“This will be especially relevant if most banks are comfortably above minimum capital requirements during the boom, such that higher risk weights on property loans may have little effect on banks’ lending behaviour.”
Angel Mas, president of European mortgage insurance at Genworth Financial, told Mortgage Solutions that an 85% LTV cap had been introduced in Sweden, but had caused problems.
“The Swedish cap meant that people simply went for unsecured personal loans to meet the levels of deposit needed. This totally obscures the real figures.
“It means customers are left with huge interest payments on short-term loans for what is supposed to be a long-term product.
“Mortgages need very sophisticated credit checking systems and with these loans customers simply use a different method to hide what they’re doing.
“Having a massive increase in unsecured loans simply doesn’t work.”