FPC aims to cut high risk mortgage loans

Tim Wallace
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BANK of England officials want the power to control mortgage lending levels by forcing banks to hold more capital against risky high loan-to-value (LTV) borrowing – but does not want an explicit cap on LTV levels because it fears a public backlash.

Raising the capital banks must hold against high LTV mortgages may be “desirable” in times when any sector is booming or deemed to be riskier than is usually realised, Financial Policy Committee (FPC) minutes revealed yesterday.

The minutes revealed some members “were attracted to the possibility” of imposing more direct limits on LTV ratios and loan to income levels, because they would cover all mortgages in a simple and transparent way.

However, the FPC concluded it did not want to impose specific limits as it has no way “to determine confidently sustainable levels of property prices” and so would not accurately be able to know when to raise or lower ratio limits in line with market conditions.

Furthermore, banning certain loans outright may be unpopular with the public – “further analysis, and public debate” may be needed before asking for such powers.