Bank of England cracks down on mortgages

The Bank of England has taken fresh steps to prevent people from taking on unaffordable mortgages. Under the proposals, lenders will not be allowed to lend any more than 15% of residential mortgages at more than 4.5 times a borrower’s income. In addition, the Bank’s Financial Policy Committee recommends that lenders check mortgage applicants can cope with a 3% rise in interest rates – slightly tougher than the current affordability checks. The new measures are designed to cool the housing market without derailing the economic recovery. Mark Carney, the BoE’s Governor, stressed that controlling debt, and not prices, was the Bank’s biggest concern. He noted that while “history shows that the British people do everything to pay their mortgages,” this had knock-on effects for the rest of the economy. “That means cutting back deeply on expenditures when the unexpected happens, potentially slowing the economy sharply. That's why recessions that follow periods of rapid growth, like the record one from which the UK is emerging, tend to be deeper and longer lasting,” he said. Mr Carney also stated that house prices could rise another 20% over the next three years, without posing a significant risk to the economy, a phenomenon which he would “tolerate”. Meanwhile, the Treasury has announced that it would stop any new loans larger than 4.5 times income from being issued to borrowers under the mortgage element of Help to Buy. Separately, theFT notes a 3% rise in interest rates would add around £3,600 a year to the average person’s mortgage costs