Talk of an upcoming mortgage cap has began to disappear after comments by mortgage lenders suggest it won’t be arriving any time soon. Mortgage lenders have said that a cap on the size of loans is not likely to be “the first tool in the box” when it comes to their plans to cool the housing market.
Chatter about this topic began when the Chancellor Of The Exchequer, Gideon Osborne, said that he planned to give the Bank Of England power to impose a cap on home loans. The cap would be related to either income or the value of the home. But at the moment, the Bank Of England can only advise about a cap and has no power to impose one.
The mortgage cap was announced not long after the Business Secretary Vince Cable stated that he was ‘appalled’ at how many banks had been lending more than five times the income of some mortgage applicants. He suggested that a stable level of lending was around 3.5 times the income.
However, the Council Of Mortgage Lenders has pointed out that there is a big difference between giving the Bank Of England powers to cap the size of loan-to-income levels and them deciding to make use of the power. It said that this would not be “the first tool in the box”.
Gideon Osborne, known by his changed name George, said in a speech: “I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market.”
But there are some people who do not agree with his policy. Kate Barker, who was formerly a member of the Bank’s Monetary Policy Committee, said she was worried about giving too much power to the Bank.
Some have also said that a more effective way to prevent a boom in house prices would be to build more homes. George Osborne has announced plans for what he calls an ‘urban planning revolution’ in order to meet these concerns about more British homes. The plans would see councils forced to pre-approve sites for housing developments in the United Kingdom.
The Chancellor Of The Exchequer Gideon Osborne also warned that if it was not fixed, the problems with the housing market might eventually lead to financial instability. However, he assured people that it does not pose an immediate threat for people in the United Kingdom.