Bank of England fears a public backlash on mortgage controls

Tim Wallace
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Donald Kohn wants the public to accept that the Bank is trying to prevent bubbles
The  Bank of England must educate the public on its new powers over mortgage lending or risk harm to its reputation, top official Donald Kohn told MPs yesterday.

Officials can limit loan to income ratios and debt to income ratios if they fear the housing market is becoming a risk to financial stability.

But that could generate public dissatisfaction with the Bank of England – individual families trying to buy a property will be stopped from buying directly because of a Bank of England intervention.

“It is a concern that the public’s understanding of Financial Policy Committee (FPC) isn’t as great as it could be,” said policymaker Donald Kohn. “This is related to the newness of the committee policy. We’re going to be trying to make credit more expensive, trying to build the resilience of the system, especially at times when things are going well.”

However, Kohn also said that the FPC’s first intervention had been accepted by consumers, who have vivid memories of the financial crisis and are keen to avoid another housing boom and bust cycle.

The FPC limited the proportion of mortgages with a loan to value ratio of more than 4.5-times to 15 per cent of a bank’s book. No banks are close to this level yet, but the aim is to prevent risks building up.

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