Lenders need clarity on extended powers for FPC
Published: 2 December 2014 | Author: Bernard Clarke
The lending industry needs greater clarity on how and when the Financial Policy Committee (FPC) would use its authority if it were given powers of direction over key tools affecting the housing market, including loan-to-value and debt-to-income caps.
In our response to a consultation on the proposals by HM Treasury, we asked why it is necessary to give the FPC powers of direction, given that the market already takes extremely seriously the committee’s powers of recommendation.
Given the significance of the UK mortgage market, which has outstanding loans worth £1.3 trillion, we recognise that it is inevitable that the sector could potentially bear the brunt of the use of macro-prudential tools. We therefore believe there should be a clear understanding of how the rules would work in future, even though it is clear that there is no need for further intervention in current market conditions.
We also believe that the FPC should explain the regulatory gaps that it feels it needs to fill by having greater powers. In our view, the Treasury should expect to see – and publish – a review by the FPC of the impact and effectiveness of the recently introduced loan-to-income caps before deciding to proceed.
If the Treasury were to decide to give the FPC further powers, we believe it would be crucial for there to be an ongoing commitment to proper consultation and communication with those who would be affected by them.
The Treasury also needs to consider the case for some exclusions from the proposed extension of powers. We do not believe, for example, that debt-to-income limits should apply to 'high net worth' individuals.
There should also be careful consideration about applying any new rules to the buy-to-let market. We would welcome consultation on this, as it is a major change with potential for unintended consequences. In contrast, however, we can see no justification for excluding government schemes such as Help to Buy from the scope of regulation, as currently proposed.