The Financial Policy Committee (FPC) of the Bank of England have recommended today that HM Treasury give it powers to direct the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA) to require lenders to place limits on residential mortgage lending. This would be done in two ways - through a) Loan-to-Value Ratios and b) Debt-to-Income Ratios. At present the FPC can only recommend such measures.
The FPC have also published a letter from Mark Carney, Bank of England Governor, to the Chancellor, George Osborne, giving his first annual assessment that the Help to Buy: Mortgage Guarantee scheme does not pose material risks to financial stability, either directly or through its impact on the wider housing market.
Lloyd Cochrane, Head of Mortgages at RBS and NatWest has responded on this news:
“We are very much open for business and keen to lend to more customers looking to buy their first or next home, or save money on their mortgage and get on with their lives. We actively support government schemes like Help to Buy as a way for young people to get on to the property ladder when they just need a little help with a larger deposit.
We absolutely recognise the need to manage any signs of pressure in the housing market. We place a strong focus on affordability and in early June we introduced a four times loan-to-income cap and maximum term of 30 years for all mortgage loans of £500,000 or more. Our lending is well within Bank of England recommendations also announced in June. We apply what we believe is a prudent test of customer affordability across all residential mortgages, at a stressed interest rate of 7%, and have done for more than five years. We also introduced a 4.99 times income multiple per application for all buy-to-let business in July. It’s vitally important that we help our customers ensure they can afford their mortgage today and in the future”.
At the time of the RBS and NatWest’s last update in June 2014, over 8000 customers had used the Help to Buy: Mortgage Guarantee scheme to buy their home, with 3 in 4 purchases completed by first-time buyers and 8 in 10 completed outside London and South East.