Published: 7 October 2014 | Author: Bernard Clarke
We welcome the financial policy committee's (FPC) view that the chancellor does not need to make any changes to the Help to Buy mortgage guarantee scheme. We agree – the scheme does not appear to be distorting the market or creating any threat to financial stability.
Broadly, the Help to Buy mortgage guarantee scheme is reaching its intended target, but not stoking disproportionate levels of low-deposit lending or having a significant impact on house prices.
The FPC has also recommended that the Treasury should give it directive powers to impose limits on loan-to-value and loan-to-income ratios for both residential and buy-to-let mortgages. Additionally, the committee is urging that the Treasury should allow it to set interest coverage ratios for buy-to-let lending.
We would draw a distinction between getting these powers and deciding that it is necessary to use them. We do not believe that, in making such a recommendation, the FPC sees the need to use such powers in the near future.
The FPC says that extending the range of measures at its disposal offers the potential for it to intervene in the market more quickly, if necessary. But the committee accepts that, if it is given the powers, it will need to provide a policy framework setting out what would trigger the need to use them.
Such a framework would help everybody in the housing market to understand the core indicators the authorities would use to judge whether risks to financial stability were building up, and what would be an appropriate response
In our view, it would be necessary to have an informed debate on the new powers to ensure that there would be no unintended consequences in applying them. We look forward to working constructively with the authorities on these issues.
Meanwhile, the FPC had earlier recommended that mortgages should be "stress-tested" against higher interest rates, and we welcome the committee’s view that the changes it was seeking have now been implemented through the rules overseen by the Financial Conduct Authority.