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Government launches consultation on further housing market powers for Bank of England

The government is inviting responses to a consultation on which powers the independent Bank of England should have over the UK’s housing market.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government


Today (30 October 2014), the government is inviting responses to a consultation on which powers the independent Bank of England should have over the UK’s housing market.

In June, the Chancellor announced that he was determined to work with the Bank to ensure that they had appropriate powers over the UK housing market to maintain its stability. Earlier this month, the Bank requested a range of powers including the ability to set a debt to income ratio for mortgages and control loan to value ratios.

Currently, the Bank can only recommend that such a limit is put in place. The power to put in place these limits lies with the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). So the government is launching a consultation today on whether the Financial Policy Committee (FPC) should have the power to directly control these limits for macro-prudential purposes.

The consultation will run from 30 October to 28 November 2014.

The Rt. Hon George Osborne, the Chancellor of the Exchequer said:

Ensuring the stability of the UK housing market is a crucial part of this government’s long term economic plan, and I have been clear that the independent Bank of England should have the tools it needs to do this.

That’s why the government is consulting on this issue, to ensure that we can bring forward appropriate legislation to give the Bank the powers it needs.

The government already works closely with the Bank to ensure the ongoing stability of the UK housing market. In June, the Bank issued a recommendation over mortgage lending limits, with new regulations introduced earlier this month capping the number of loans above 4.5 times income which banks can offer.

The powers that the Bank is requesting are commonly held by its counterparts in other countries. Loan to value controls are used extensively in countries including Canada, New Zealand and Norway, while both the Hong Kong and South Korea have used debt to income ratios too, which has proved particularly successful.

The consultation document states that the government is proposing that the Bank is granted powers of direction for loan to value limits and debt to income limits for owner-occupied mortgages. The government is particularly interested to hear what consumers and the industry feels is an appropriate definition of debt for these purposes.

The government intends to consult separately in 2015 on the Bank’s recommendations for it to have new powers over the buy to let market, with a view to building an in-depth evidence base on how the operation of the UK buy-to-let housing market may carry risks to financial stability.

Read more about the consultation

Published 30 October 2014