The Bank can now limit borrowers’ mortgages based on their income relative to the size of the loan – or stop them buying a house with a small deposit. Previously, Carney could only advise banks to set caps.
During its infancy in March 2012, the Bank’s financial policy committee asked not to have these powers, fearing a public backlash if it stopped borrowers getting the mortgages they wanted.
But now the chancellor has told the Bank to take the powers, as public awareness of the risk of a housing bubble has grown.
“The risks come when people borrow too much to pay for rising house prices,” Osborne said in his annual Mansion House speech. “In excess, that debt can cause serious difficulties for them and the banks who lent to them. And it can cause difficulties for the economy as a whole.”
And although Osborne said, “there is no immediate cause for alarm”, Carney replied that there were signs of a bubble growing, as prices rose in the expectation of future increases.
“The housing market is showing the potential to overheat,” he said. “Some slowing [in house sales] could reflect would-be sellers holding back properties from the market in anticipation of higher future prices – an early sign of extrapolative price expectations.”
Carney said he favoured mortgage controls to stop any imbalances harming banks and the economy.