Firstly, the committee has to ensure the underlying financial system is regulated so that it is stable and proofed to risk. Secondly, it has to try and identify economic risks to the financial system and when necessary, take action to keep the system stable.
Of course, the Bank of England’s interventions in the housing market to guard against over-heating and risks to the wider economy have been the big news over the course of the last few weeks.
The proposal comes two fold. The rate against which mortgage lenders should stress test the loans they advance at is now 7% – which is much more prescriptive.
There will also be a cap on the percentage of lending being done at the highest loan-to-income multiple, with no more than 15% of new mortgage lending to be at more than 4.5 times a borrower’s income multiple.
Personally, I think that this is a sensible intervention and it is important to note that both of these moves are broadly in line with where the industry is already today.
There is no evidence of a housing bubble emerging across the UK and what the moves made by the Financial Policy Committee are doing will protect the market to help ensure we don’t see one in the future. Prevention is always better than cure; and this is a sensible pre-emptive step.
Mike Jones director of intermediaries at Lloyds Banking Group
