http://www.telegraph.co.uk/finance/n...ohn-Gieve.html
Mortgage deals 'should be capped', says Sir John Gieve
The Government should consider imposing caps on the amount mortgage companies can lend to homebuyers, the Bank of England's deputy governor has said.
Sir John Gieve used his final speech before stepping down to indicate that the authorities must consider imposing more direct controls on the amount banks can lend to their customers. This might include caps on the loan-to-income and loan-to-value ratios - the key metrics banks use to work out whether to lend to prospective buyers.
He said: "In theory, a ceiling on these ratios could have provided an effective brake on the excesses of the last boom.
"If problems are concentrated within the property market then caps on loan-to-income and loan-to-value ratios might be effective."
Sir John, who is to be succeeded by Paul Tucker at the end of this month, has also supported plans to emulate Spain's financial regulation system. He acknowledged that the Bank could have set interest rates more appropriately in the decade before the financial crisis, saying: "the large and co-ordinated cut in interest rates at the start of this decade almost certainly contributed to the build-up of an ever larger bubble."
He also warned that the UK faced a risk of slipping into a Japan-style decade of deflation and stagnation in the coming years, and said that the Bank was currently wrestling over the question of how low interest rates could feasibly go. He said: "one issue is... how close you get to zero, whether 1 or 0.5[pc]."
But given his concentration on financial stability, it is his comments on controls for mortgages that will attract most attention.
Few policymakers have called for direct controls on bank lending, although many have raised concerns about the fact that, during the peak of the housing bubble, banks were willing to lend significantly more in comparison to borrowers' incomes or home value than in previous years.
Most notorious of all was Northern Rock's Together mortgage, which lent borrowers up to 125pc of the value of their homes, ensuring they would be in instant negative equity from the moment they took it out.
=================
Mortgage deals 'should be capped', says Sir John Gieve
The Government should consider imposing caps on the amount mortgage companies can lend to homebuyers, the Bank of England's deputy governor has said.
Sir John Gieve used his final speech before stepping down to indicate that the authorities must consider imposing more direct controls on the amount banks can lend to their customers. This might include caps on the loan-to-income and loan-to-value ratios - the key metrics banks use to work out whether to lend to prospective buyers.
He said: "In theory, a ceiling on these ratios could have provided an effective brake on the excesses of the last boom.
"If problems are concentrated within the property market then caps on loan-to-income and loan-to-value ratios might be effective."
Sir John, who is to be succeeded by Paul Tucker at the end of this month, has also supported plans to emulate Spain's financial regulation system. He acknowledged that the Bank could have set interest rates more appropriately in the decade before the financial crisis, saying: "the large and co-ordinated cut in interest rates at the start of this decade almost certainly contributed to the build-up of an ever larger bubble."
He also warned that the UK faced a risk of slipping into a Japan-style decade of deflation and stagnation in the coming years, and said that the Bank was currently wrestling over the question of how low interest rates could feasibly go. He said: "one issue is... how close you get to zero, whether 1 or 0.5[pc]."
But given his concentration on financial stability, it is his comments on controls for mortgages that will attract most attention.
Few policymakers have called for direct controls on bank lending, although many have raised concerns about the fact that, during the peak of the housing bubble, banks were willing to lend significantly more in comparison to borrowers' incomes or home value than in previous years.
Most notorious of all was Northern Rock's Together mortgage, which lent borrowers up to 125pc of the value of their homes, ensuring they would be in instant negative equity from the moment they took it out.
=================
Comment