On 12 June 2014, the Chancellor stated that he was committed to ensuring that the Financial Policy Committee (FPC) has “all the weapons it needs to guard against risks in the housing market.” He announced his intention to give the FPC “new powers over mortgages, including over the size of mortgage loans as a share of family incomes or the value of the house”.

On 2 October 2014, the FPC published its recommendations to the Government. Specifically, the FPC recommended that it be granted powers of direction over the following housing tools for the owner-occupied and buy-to-let residential mortgage markets:

  • loan-to-value (LTV) ratios; and
  • debt-to-income (DTI) ratios, including interest coverage ratios in respect of buy-to-let lending.

HM Treasury has now published a consultation paper in response to the FPC recommendations. In the consultation paper the Government is proposing that powers of direction are granted for LTV limits and DTI limits in respect of owner-occupied mortgages. The Government would particularly welcome views on the appropriate definition of debt for the purposes of the FPC’s power of direction.

The FPC also recommended that it be granted powers of direction over LTV limits and interest coverage ratios in respect of the buy-to-let mortgage market. The Government intends to consult separately on these recommendations in 2015 with a view to building up evidence on how the operation of the UK buy-to-let housing market may carry risks to financial stability.

The deadline for comments on the consultation paper is 28 November 2014.

View Financial Policy Committee’s housing market tools, 30 October 2014