On 2 October 2014, the Financial Policy Committee (FPC) recommended that it be granted powers of direction over housing market tools in relation to owner-occupied mortgages and buy-to-let residential mortgages. In particular, the FPC recommended that it be granted the power to direct, if necessary to protect and enhance financial stability, the PRA and FCA to require regulated lenders to place limits on mortgage lending, both owner-occupied and buy-to-let, by reference to:
- loan-to-value (LTV) ratios; and
- debt-to-income (DTI) ratios, including interest coverage ratios (ICR) in respect of buy-to-let lending.
In response, HM Treasury proposed that powers of direction be granted for LTV limits and DTI limits in respect of owner-occupied mortgages. The UK Government consulted on draft legislation from 30 October 2014 to 28 November 2014.
HM Treasury has now published a document which summarises the comments received to its earlier consultation on the draft legislation. The UK Government has laid the statutory instruments in Parliament. The instruments will need to be approved by both Houses of Parliament before they become law.
The FPC also recommended that it be granted powers of direction over LTV limits and ICRs in respect of the buy-to-let mortgage market. The UK Government intends to consult separately on these recommendations early in the next Parliament with a view to building an in-depth evidence base on how the operation of the UK buy-to-let housing market may carry risks to financial stability.
View FPC’s leverage ratio framework, 2 February 2015
