Mortgage cap 'won't be used soon'

George Osborne: "There is no immediate cause for alarm"

Mortgage lenders have said that a cap on the size of mortgage loans is unlikely to be "the first tool in the box" to cool the housing market.

Chancellor George Osborne plans to give the Bank of England the power to impose a cap on home loans related to income or the value of the house.

At present, the Bank can advise on such a cap, but not impose it.

But lenders believe new affordability tests are a bigger factor for those trying to buy a home.

The Bank also has powers already to ensure banks carry certain levels of capital, preventing any return to what most regard as the unhindered mortgage lending seen before the financial crisis.

Getting a deal

The cap was announced shortly after Business Secretary Vince Cable said he was "appalled" that some banks had been lending five times a mortgage applicant's income, suggesting a "stable level" was up to 3.5 times.

The Council of Mortgage Lenders (CML) pointed out that there was a big difference in giving the Bank the power to cap loan-to-income levels and the Bank deciding to use that power. It would not be the first tool in the toolbox to be used, it said.

Former Conservative Chancellor Lord Lawson also said it could be more of a backstop. He told the BBC that he believed this would be a "reserve power" and was unlikely to be used.

As a result, it is unlikely that this would immediately make it more difficult to secure a mortgage. Yet the cost of a mortgage would be expected to rise if interest rates go up, and this could make getting a deal trickier for some.

Affordability checks

In his speech, Mr Osborne said the Bank's Financial Policy Committee would be given the new capping power before the end of this Parliament.

BBC housing calculator

Renting example
  • Lets you see where you can afford to live - and if it would be cheaper to rent or buy
  • Enter how many bedrooms, which end of the market and how much you want to pay each month
  • As you move the payment slider, parts of the UK light up to show you where you can afford
  • Based on pricing and rental data from residential property analysts Hometrack

"I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market," he said.

But Kate Barker, a former member of the Bank's Monetary Policy Committee, said she was concerned that this was transferring too much power to the Bank.

She told Radio 5 live that former Bank governor Mervyn King had not been keen on having power to regulate mortgage lending. He felt that was something politicians should decide, she said.

Borrowers now have to face stricter mortgage affordability rules, following the intervention of the regulator. This means that instead of relying on an applicant's income as a measure of their ability to make repayments, lenders must also study these applicants' expenditure.

They also check whether borrowers would be able to cope with rising rates.

There have been suggestions that this has been one factor in activity in the housing market having come off the boil in some areas in recent weeks. In some parts of the UK, the has been little sign of an overheating market.

House building

Commentators have said that the key to preventing house price booms was to build more homes.

Mr Osborne, in his speech, announced reforms to planning laws designed to increase the supply of housing. These should provide permission for up to 200,000 new homes, the government says.

He announced plans for an "urban planning revolution" which would see councils forced to pre-approve brownfield sites for housing developments.

However, shares in housebuilding companies fell in early trading on Friday following the announcement. Investors were concerned about the potential for interest rate rises, signalled in Bank of England governor Mark Carney's Mansion House speech.

The chancellor said the housing market did not pose an immediate threat to financial stability, but that if left unchecked, it could do so in the future.

More on This Story

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    STANDARD RUMOURS 08:47:

    The rumours over Peter Sands and Sir John Peace shouldn't come as a major surprise given that last month Standard Chartered issued its second profit warning in two years. It wasn't a small warning either. The bank said first-half operating profits would be 20% lower than a year earlier, blaming a slump in income from its financial markets business. That came only three months after the Asia-focused lender reported its first fall in annual profits for a decade.

     
  2.  
    MARKET UPDATE 08:42:

    European markets have opened lower this morning as investors try to digest a raft of company announcements and economic data. In London, the biggest rise on the FTSE 100 so far is mining firm Antofagasta which is up 1.3% to 845p. On the fallers side Kingfisher leads on worse than expected second quarter trading, down nearly 7% to 312.7p.

    • The FTSE 100 is 0.37% lower at 6773.08
    • The German Dax is down 0.62% to 9693.22
    • France's Cac-40 is 0.51% lower to 4354.07
     
  3.  
    STANDARD RUMOURS 08:38:
    CEO of Standard Chartered, Peter Sands

    A rather terse statement from Standard Chartered this morning, a UK bank that does most of its business in Asia. Some rumours suggest they may be looking to replace chief executive Peter Sands and chairman Sir John Peace. The board is "united in its support of both Peter Sands and Sir John Peace," it says. "No succession planning is taking place as a result of recent investor pressure."

     
  4.  
    WINTER STORM COMPENSATION 08:28: BBC Radio 4

    "Part of what we are announcing today is that the companies are paying out money to charities that work on the ground helping with these situations [the winter storms]," Maxine Frerk, senior partner at Ofgem, tells the Today prgramme. She adds both SSE and UKPN have "learned lessons", particularly around communication both through call centres as well as on the internet and social media.

     
  5.  
    WINTER STORM COMPENSATION 08:19:

    Crucially, Ofgem says the extra £3.3m SSE and UKPN are paying out is going to organisations like the British Red Cross rather than back to customers who were left without power over Christmas. What is interesting is Ofgem has decided to up the minimum compensation for customers who are left without power for 24 hours from £27 to £70. The regulator is also upping the cap on compensation payments from £216 to £700.

     
  6.  
    MARKET UPDATE 08:07:

    Tokyo stocks lost early gains to finish down 0.29%. The benchmark Nikkei 225 index lost 44.14 points to close at 15,284.42. Geopolitical worries about Gaza curbed risk appetites. Hong Kong shares ended the morning session 0.39% higher after preliminary figures showed an index of Chinese manufacturing activity hit an 18-month high in June.

     
  7.  
    WINTER STORM COMPENSATION Via Twitter Adam Parsons Business Correspondent

    tweets: OFGEM says SSE and UKP "could have done more to get customers reconnected faster" during winter storms

     
  8.  
    WAGES 07:53: Radio 5 live

    "Wages are still flat," says Paul Mawdsley, a recruiter who runs Mawdsley Consultancy, talking to 5 live. "There isn't a great demand in the labour market yet," so that's keeping salaries down. He's also seeing a "dire shortage" of engineers in such areas as pneumatics and hydraulics. Not enough people are being trained.

     
  9.  
    INTEREST RATES 07:50:
    Bank of England Governor Mark Carney

    Meanwhile, the Guardian thinks the Bank governor is worried about low interest rates leading households to take on too much debt. As you might imagine that puts them on either side of the when-are-interest-rates-going-to-rise guessing game that is fast becoming a national obsession.

     
  10.  
    ENERGY PROBE 07:40:

    The CMA's probe will see whether energy companies should be wholesalers as well as selling to retail customers (you). The gas market appears to be working better than the electricity market, and they'll try to find out why. They won't be looking at big business customers because that market looks fine, the CMA says.

     
  11.  
    INTEREST RATES 07:31:

    Bank of England governor Mark Carney is in all the newspapers today following his speech to the Commonwealth business conference yesterday. The FT interprets Mr Carney's speech as revealing deep concerns about household indebtedness and the effect an interest rate rise will have on households' ability to service their debts.

     
  12.  
    UNILEVER RESULTS 07:23:

    Unilever, the food giant, has said first half net profit rose to 3bn euros (£2.37bn) from 2.68bn euros even as sales fell. Its cost savings plan is working well, it said. Excluding businesses sold or otherwise disposed of, sales rose 3.7%.

     
  13.  
     
  14.  
    WINTER STORM COMPENSATION 07:19:
    SSE logo at the SSE Training Centre in Perth

    SSE and UK Power Networks (IKPN) are to pay an additional £3.3m for delays in getting power back up and running to households in southern England following last winter's storms. That's on top of the £4.7m the two energy companies are paying out to customers under guaranteed standards and in goodwill payments. It brings the total paid out by the two companies to £8m.

     
  15.  
    ENERGY PROBE 07:04: Breaking News

    The Competition and Markets Authority (CMA) will carry out an independent investigation to see if there are any features of the energy market which "prevent, restrict or distort competition and, if so, what action might be taken to remedy them," it says. It will report back by Christmas day 2015.

     
  16.  
    INTEREST RATES 06:56: Radio 5 live

    Kathleen Brooks of FOREX.com thinks January will be the time for a rate increase from the Bank of England. Maybe a 25 basis point increase to 0.75%, she says. Bank governor, Mark Carney, said yesterday there may be more labour supply than previously thought. Wages growth is thus being held back.

     
  17.  
    RUSSIAN SANCTIONS 06:44: BBC Radio 4
    Russian President Vladimir Putin

    Kathleen Brooks has now popped up on the Today programme. She says sanctions against Russia "are toothless at this point....Russia has a lot of energy that the West wants." She adds divisions in the West over energy policy have been exposed by the fact "the UK and France have a spat about sanctions and that just plays into Vladimir Putin's hands." Ms Brooks says there have "also been rumours that Russia has been unofficially propping up the rouble. The sanctions are not going to hurt the European Union's energy links to Russia."

     
  18.  
    ENERGY PRICES 06:31: Radio 5 live

    If you have to steel yourself with a nice cup of sweet tea before opening your latest energy bill, spare a thought for Nigel and Linda Brotherton, who were told by Npower that their monthly direct debit was going to increase from £87 to £53,480,062. Npower has apologised and the incorrect bill has been cancelled. "It's a massive shock," he tells 5 live.

     
  19.  
    GLAXOSMITHKLINE 06:24: Radio 5 live
    gsk

    David Buik of Panmure Gordon is helping us digest the GlaxoSmithKline results on 5 live. "Sales to China is only about 3% of its total business," and so the bribery scandal there is an unwelcome distraction.

     
  20.  
    ROUBLE 06:15: Radio 5 live

    Kathleen Brooks of FOREX.com is on 5 live talking about Russia. The Russia rouble has been "resilient" bearing in mind the new sanctions against Russia. "They are able to shrug off geopolitical risk quite quickly," she says. President Putin may be "breathing a sigh of relief," she adds.

     
  21.  
    POUND 06:01: Radio 5 live

    The pound buys about 1.27 euros, its strongest in nearly two years - don't get excited that's not what you'll get from your local foreign exchange. Still, Kathleen Brooks, a research director at FOREX.com, is on 5 live talking about it. The strong pound has helped ease inflation, she says. "Over the period of the financial crisis we had sky high inflation," she adds. The recovery is consumer-driven, which is aided by a stronger pound, which means cheaper imports.

     
  22.  
    06:00: Howard Mustoe Business reporter

    Good morning! Get in touch via email at bizlivepage@bbc.co.uk or on twitter @BBCBusiness

     
  23.  
    06:00: Matthew West Business Reporter

    Good morning folks. So what's new? Facebook has posted some stonking profits for its second quarter, the US has - just - lifted its ban on flights into Tel Aviv and it's Thursday, so General Motors has decided to recall another couple of hundred thousand cars overnight. There's plenty more to come, stay with us.

     

Features

  • Shinji Mikamo's father's watchTime peace

    The story of the watch that survived Hiroshima


  • A man hangs a Catalan flag at his balcony near Barcelona in 2013Caledonia homage

    Who are the Europeans with an eye on the Scottish referendum?


  • Elephant Diaries - BBCGoing wild

    Wildlife film-makers reveal the tricks of the trade


  • Hamas rally in the West Bank village of Yatta, 2006Hamas hopes

    Why the Palestinian group won't back down yet


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.