Bank of England eases curbs on risky mortgages

The Bank of England has eased a curb on risky mortgages that are large relative to a borrower’s income, amid signs that Britain’s housing market has begun to cool.

In June, the Bank of England’s Financial Policy Committee recommended that “as soon as practicable” no more than 15% of mortgages should be at, or greater than, 4.5 times a borrower’s income.

The bank put out draft rules to public consultation in June to implement this loan-to-income ratio and yesterday published the final version with some amendments.

The bank’s Prudential Regulation Authority had proposed that firms which report less than £100m (€129m) of new mortgage lending a year would escape the net.

In its final rule, this monetary threshold is kept but the authority has also added a numerical threshold for contracts.

“This means that lenders who extend less than £100m in value or fewer than 300 in number of relevant regulated mortgage contracts each year fall outside the scope of the policy,” the authority said in a statement.

This will avoid a “disproportionate” impact on “niche” lenders, the it said.

Britain’s Council of Mortgage Lenders said the change was sensible and practical.

“We are pleased that the Prudential Regulation Authority listened to the Council of Mortgage Lenders and other organisations who argued that the high loan-to-income lending limit was anomalous for niche lenders in the high net worth lending market,” Council of Mortgage Lenders director general Paul Smee said.

“While it is not yet entirely clear how this approach will affect individual lenders, it is a clear improvement on the original implementation proposal,” Mr Smee added.

House prices in Britain fell last month for the first time since April 2013, mortgage lender Nationwide said this week.

The market has been cooling since the middle of the year, when regulators required lenders to make tighter affordability checks on borrowers as well as announcing the limit on high loan to income mortgages.