In his Mansion House Speech tonight (Thursday 12 June), as part of the government’s long term economic plan to build a more resilient economy for all, the Chancellor took action to address risks that could emerge in the housing market and tackle the UK’s long term housing challenge – by helping people achieve their aspiration of owning their own home, while ensuring that we do not repeat the mistakes of the past if risks do build up.
The Chancellor said that the housing market does not pose an immediate threat to financial stability today, but - especially if we don’t learn the lessons of the past – it could in the future, and therefore it is important to act now to insure ourselves against future problems before they can materialise.
He announced that he is giving further powers to the Bank of England to act if they think it is right to do so – including, for the first time, the power to cap the size of mortgage loans as a share of a borrower’s income or the value of the house. Latest data on new lending shows that loan to value ratios remain well below their peak, but that loan to income ratios are at a new high.
These new powers will be in the form of further tools for the Financial Policy Committee (FPC), the new independent body established by the government charged with ‘macro prudential’ oversight of the financial system. The new powers will be legislated for and in place, following consultation, by the end of the Parliament.
The Chancellor has previously said, and reiterated again in his speech, that the Bank should not hesitate to use these new powers if they think it necessary to protect financial stability.
He also said that if the Bank does take action, then the same action will be applied to every single Help to Buy mortgage as well. The Chancellor also used his speech, citing latest data and the IMF’s conclusions last week, to reiterate that the Help to Buy scheme is working as intended.
So that more families have the economic security that comes with home ownership, the Chancellor announced further reforms to planning rules which will provide permission for up to 200,000 new homes.
To deliver this, councils will be required to put in place pre-approved planning permissions on brownfield sites that are suitable for housing. Local authorities will apply local development orders (LDOs) onto sites and we expect over 90% of suitable brownfield land to be covered by 2020. This approach will allow developers to get building sooner, saving them time and money.
We will create a £5 million fund to help local authorities create the first 100 sites with LDOs. The government will also consult on a range of measures to enforce this approach, including allowing developers to apply directly to central government where councils have not done enough to remove planning obstacles on brownfield sites.