- POSTED: 26 Jun 2014 20:59
The Bank of England on Thursday launched measures aimed at cooling Britain's booming housing market, including a cap on lending for home loans.
LONDON: The Bank of England (BoE) on Thursday launched measures aimed at cooling Britain's booming housing market, including a cap on lending for home loans.
The bank's Financial Policy Committee (FPC) recommended that property loans of 4.5 times a borrower's income or higher should comprise no more than 15 per cent of new mortgages, with effect from October.
The news pushed up the sterling, since markets took it as a signal that the BoE might soon begin to tighten its key interest rates.
The FPC added in a key report that banks should apply a "stress test" to determine that borrowers can afford mortgage repayments, should the BoE's main lending rate climb by 3.0 percentage points.
The BoE has held its key interest rate at a record-low level of 0.50 per cent since March 2009, as it sought to stimulate and strengthen Britain's economic recovery. Its benchmark rate, meanwhile, influences what retail banks charge customers for home loans.
With Britain's economy powering ahead in the first quarter with gross domestic product growth of 0.8 per cent, there are concerns over its recovering housing market amid mounting fears of a bubble in London.
"The legacy of high indebtedness and structural imbalances mean that there are financial stability risks that if left unchecked could undermine the durability of that expansion," BoE governor Mark Carney told journalists at a press conference.
"And the biggest risks relate to the housing market."
The FPC added that "the recovery in the UK housing market has been associated with a marked rise in the share of mortgages extended at high loan-to-income multiples".
It added: "At high levels of indebtedness, households are more likely to encounter payment difficulties in the face of shocks to income and interest rates.
"This could pose direct risks to the resilience of the UK banking system and indirect risks via its impact on economic stability."
The regulator stressed that household indebtedness did not pose an "immediate threat" to the economy, but it wanted to prevent against a "significant" rise in the number of highly indebted households.