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Power to curb mortgage lending proposed

Julia Rampen
Written By:
Julia Rampen
Posted:
Updated:
15/01/2013

Mortgage lending criteria could get stricter during economic booms if plans for more capital requirement controls go ahead.

The Bank of England has proposed that a newly-created Financial Policy Committee would be able to demand that banks and building societies increase the amount of capital they hold on their books against the mortgages they lend out if fears of reckless lending arise.

The measure, known as sectoral capital requirements (SCR), could be used to target specific sectors such as residential mortgages or even just high loan-to-value mortgages.

The report explained: “The SCR tool would provide a means for the FPC temporarily to increase banks’ capital requirements on exposures to specific sectors.

“For example, if the FPC judged that exuberant commercial property lending posed risks to financial stability, it could increase SCRs on commercial property loans so that banks were required to have more capital against such exposures.”

The draft proposals, which were set out in The Financial Policy Committee’s powers to supplement capital requirements, aim to protect the UK financial system and enhance its resilience in the face of risk.

The SCR tool will apply to banks, building societies and large investment firms, although the number of institutions might increase in future if financial activity “leaks” to unregulated areas.

Giving evidence to the Treasury Committee this morning, Bank of ENgland governor Sir Mervyn King acknowledged that no-one liked seeing the interest rate on their mortgages going up and described the powers given to the FPC as an “innovation”.

“There is an element of an experiment and we do not know yet what the public acceptance of the use of these financial instruments will be,” he said.


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