Thursday 02 October 2014 5:25 am | Updated: Friday 07 June 2019 11:54 am

Bank of England backs move for greater powers over mortgage lending as it warns over financial instability posed by housing market

The Bank of England has warned that the UK housing market represents a continued risk to financial stability, backing government calls for greater powers to cap mortgage lending for homes and buy-to-let properties.

The BoE's Financial Policy Committee has come out in support of George Osborne's suggestion, which was initially put forward over the summerand reiterated this week at the Conservative party conference.

The FPC said it should be given poweres to require regulated lenders to place limits on residential mortgage lending, both owner-occupied and buy-to-let, regarding both loan-to-value ratios and debt-to-income ratios, including interest coverage ratios when it comes to buy-to-let lending.

It said: "The FPC judges that, taken together, these instruments are necessary, and should be sufficient, to tackle risks to financial stability that could emerge from the housing market in the future, rather than indicating likely FPC policy decisions in the short term."

The statement comes despite signs that the housing market may be cooling. Nationwide released data this week showing that average house prices had fallen 0.2 per cent in the last month, with annual growth slowing to 9.4 per cent from 11 per cent.

Any new powers would need statutory underpinning, initiated by the Treasury.

The FPC has also given the controversial Help to Buy scheme a clean bill of health.

"The scheme does not appear to have been a material driver of (house price) growth – for example, take-up of the scheme has been weak in London where house price growth has been strongest," it said.