The Bank of England gave a clean bill of health to Britain's controversial flagship mortgage guarantee scheme on Thursday, sparing the government from potential embarrassment in the run-up to a national election. The central bank also formally asked to expand its arsenal of powers to curb mortgage lending for homes and buy-to-let properties, and said it was bringing forward the date when it would put a figure on the maximum leverage banks can have.
Prime Minister David Cameron announced the Help to Buy mortgage guarantee scheme at his Conservative Party's annual conference last year, saying it would aid home-buyers who could afford mortgage repayments but lacked a large deposit. The plan was widely criticised by opposition politicians and many private-sector economists for risking pushing up house prices, which have since risen by around 10 percent.
However the BoE said Help to Buy was not to blame, as it only accounted for around 5 percent of mortgages and was most used in regions where house prices had risen least. "The scheme does not appear to have been a material driver of (house price) growth - for example, take-up of the scheme has been weak in London where house price growth has been strongest," the central bank's Financial Policy Committee said.
Mortgage lending standards had not deteriorated since the launch of Help to Buy, and house prices appeared to be cooling sooner than the FPC had expected when it last met in June and imposed caps on general mortgage lending. The BoE's support is likely to be a small boost for the Conservatives in the run-up to a national election in May, in which they are trailing the opposition Labour Party by several percentage points in the polls.
Cameron had defended Help to Buy on Wednesday at this year's annual party conference, the last before the election. He also announced new measures to make cheap homes available to home-buyers aged under 40, as a shortage of affordable housing - particularly in south-east England - is a major public concern.
Under Help to Buy, lenders can get insurance from the government to cover the extra risk of lending to someone with a deposit of as little as 5 percent, rather than 20 percent, on a house worth up to 600,000 pounds. Finance minister George Osborne said in a statement on Wednesday that he welcomed the FPC's decision. Thursday also saw the FPC formally recommend that it receive the legal power to cap how big a mortgage Britons can receive relative to their income and the value of their home.
Finance minister George Osborne said in June that he was willing to give the BoE this type of power, and on Monday he said that he wanted to get them into law before the election. The BoE's Financial Policy Committee can already recommend loan-to-value and loan-to-income caps on mortgages, and in June it urged banks to issue no more than 15 percent of mortgages at loan-to-income ratios above 4.5 times a borrower's income. On Thursday it said specifically that it wanted its powers to apply to both residential and buy-to-let mortgages. For residential mortgages, it wants to be able to cap debt-to-income ratios - limiting how much banks can lend, taking into account all a borrower's debts and not just their mortgage.
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