Bank of England governor Mark Carney says there needs to be an open debate about introducing loan-to-value caps to curb risky mortgage lending.
Speaking at a Treasury select committee hearing on the Bank’s inflation report today, Carney rejected suggestions the housing market was booming by pointing out it was performing very differently across the country.
Carney re-iterated the ways in which the Bank could intevene to restrict risky lending and stop excessive LTV deals.
Carney told MPs: “In simple terms, it begins with more intensive supervision of mortgage lending, making sure underwriting standards are maintained, so that we do not see a return to more than 100 per cent loan-to-value ratios, that there are appropriate standards on loan to income.
“It can extend all the way to sectoral capital requirements, additional capital, that banks would have to hold against certain types of lending, including mortgages.
“I also think it should be a question of open debate for whether there should be a consideration, if there were a case where there were vulnerabilities in the judgment of the financial policy committee, whether there should be some guidance provided in terms of LTV ratios and loan-to-income ratios. We do not have powers of direction in that regard, but certainly we retain the ability to observe and recommend if necessary.”
Chancellor George Osborne wants the financial policy committee to have the power to cap LTVs but the FPC has rejected it last year on the basis it should be a decision for Parliament.
It has been under discussion by European regulators, the International Monetary Fund along with politicians and economists since the crisis struck in 2007.
Earlier this week business secretary Vince Cable has questioned whether the second part of the Help to Buy scheme should go ahead over bubble fears.
HARP refinancings also fell by 10% to the lowest level since December.
The FHFA reported Thursday that GSE servicers completed 79,260 HARP refis in July, down from 88,375 in the prior month.
In July, 17% of loans refinanced through HARP had loan-to-value ratios greater than 125% and 42% of HARP refis had LTVs greater than 105%.
Overall, HARP refis comprised 22% of total GSE refinancings in July.