The Bank of England has launched a review of mortgage lending rules that could pave the way to easier access to home loans for first-time buyers.
Threadneedle Street said in its financial stability report, published on Friday, it was reviewing mortgage market rules that limit the amount people can borrow as a multiple of their income and limit the number of high loan-to-value mortgages banks can offer.
The rules, introduced in 2014, are meant to stop people borrowing more than they can afford and to cap the amount of riskier mortgages in the market.
“The purpose of these tools is to prevent, in aggregate, highly indebted households making a recession worse by cutting back on consumption,” Sir Jon Cunliffe, a deputy governor at the Bank of England, told journalists. “We saw those effects in 2009/10.”
The rules have the potential to limit the number of young people who can take the first step on the housing ladder as they prevent them from borrowing enough to buy a house. The problem is particularly acute in areas like London, the central bank said.
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The Bank of England’s own data suggests around 2% of renters could be “constrained” by its measures, although the bank said this group could still buy a house by saving for longer and borrowing less or downsizing the property they target.
“There’s no evidence that these tools are having a constraining effect,” Sir Cunliffe said. “We’re actually seeing mortgage approvals rise. In October they were back to nearly 100,000, which is back to 2007 levels, and within that, a high degree of first time buyers getting on to housing ladder.”
The mortgage limits are calibrated to protect against rising interest rates, which could make mortgage debt unaffordable. The UK interest rate fell to a new record low at the start of 2020 and rates are not expects to rising meaningfully over the next few years. As a result, the Bank of England’s review will look at whether the controls are still warranted.
The review will not necessarily lead to any changes and Bank of England officials were reluctant to comment on whether the review would ultimately make it easier for first time buyers to get financing.
Bank of England governor Andrew Bailey said the measures delivered a “great deal of stability to housing finance.”
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