Speaking about the Financial Policy Committee’s (FPC) request for powers to limit loan-to-values (LTV) and debt-to-income (DTI) ratios, Paul Broadhead, head of mortgage policy at the BSA, urged caution.

“Policymakers should be aware of the inconsistent consumer outcomes that any use of macro-prudential tools such as LTV or DTI limits could drive.”

Broadhead said applying caps to lending on a reactionary basis could cause ‘unfortunate and unintended’ outcomes.

Those borrowers looking for a mortgage in a market free of LTV caps would be granted a loan at 95% LTV if they had saved for a deposit. But, he added, if the same borrower applied after the implementation of a cap of 85%, for example, they could be driven to take out a secured or unsecured loan to make up the remainder of their deposit which would put stress on their ability to meet their mortgage payments.

He added: “Clearly it is necessary that the Bank has a range of tools in its kit to manage financial stability. However, when and how these tools are deployed should be a matter for caution and consultation. Great care must be taken, particularly when there are a range of interventions in the market as at present, to ensure that prior to intervening directly in the mortgage market the Bank has fully assessed the cumulative impact of these interventions.”

On 1 October the Bank’s loan-to-income (LTI) cap into force which limits how many loans a lender can advance at four-and-a-half times a borrower’s income, to 15% of its loan book.