Bank of England may raise high-risk mortgage threshold: FT

THE Bank of England (BOE) is considering easing restrictions on higher-risk mortgage loans in a move that could support the UK housing market, the Financial Times (FT) reported. 

Under pressure from lenders and the government, the central bank’s financial policy committee (FPC) is examining whether to increase a key lending threshold to five times borrowers’ household income, up from 4.5 times at present, the newspaper said.

Since 2014, most banks have been prevented from offering more than 15 per cent of mortgages to borrowers above that loan-to-income level. 

The Bank of England told FT that it “keeps its housing tools under regular review, having regard to the FPC’s primary and secondary objectives”.

The bank lobby group UK Finance estimated that raising the threshold could free up additional lending capacity equivalent to 7 per cent of new residential mortgages, said FT.

The UK residential property market is under renewed pressure as surging mortgage costs squeeze prospective buyers. House prices stagnated in October, said one of the country’s largest mortgage lenders, following a 0.3 per cent decline in September.   

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UK Chancellor John Healey wrote to the BOE this week, urging the FPC to “target improving access to home ownership without prejudicing financial stability”, and to consider how the loan-to-income threshold can better support that objective.

That followed his move in Wednesday’s (Oct 28) Budget to double the UK’s bank tax surcharge to 6 per cent, raising roughly £1.5 billion (US$2 billion) to help fund cost-of-living relief for cash-strapped households. BLOOMBERG