The governor of the Bank of England Mark Carney has proposed new measures to cool the UK’s housing market in the bank’s latest stability report.
It has introduced a cap on mortgages whereby no more than 15% of banks’ mortgage lending can be higher than 4.5 times the income of borrowers. It has also proposed a stress test whereby it should be checked whether borrowers will be able to afford a 3% rise in interest rates over a five-year period.
The measures are designed to prevent a large amount of high-risk lending by banks and prevent high household indebtedness.
Carney said that should the economy continue to grow at its current rate that the measures should have little impact but should only begin to bite if momentum in the housing market.
On its current assumptions that house prices will rise by 20% over the next three years, mortgage approvals hit 90,000 a month and wages grow by 4% there will be no impact.
The report said:
“The FPC does not believe that household indebtedness poses an imminent threat to stability, but it has agreed that it is prudent to insure against the risk of a marked loosening in underwriting standards and a further significant rise in the number of highly indebted households.”