The Bank of England has introduced stricter measures for mortgage lending in order to cool the market. This announcement has been described by experts as an insurance policy to eventually avoid an overheating of the housing market in the future, rather than a fire extinguisher to put out the flames now.
The Bank asked lenders to make sure that borrowers can keep up with their loan repayment if the interest rates will rise in the first five years of the loan.
The Financial Policy Committee said that lenders should not issue more than 15% of new mortgages for borrowers with an income under a quarter of the loan. Lenders will be taking into account such new limits from October 1st.
According to the Council of Mortgage Lenders, national statistics show that 9% of the new loans are 4.5 times a borrower’s income, while this figure goes up to 19% in the capital.
Property economist at Capital Economics, Matthew Pointon, highlighted that the share of new loans in the capital could rise further without a breach of the national limit, as no regional restrictions were established by the Bank.
However, Chief Executive of London First – a body representing property firms in London – Baroness Jo Valentine said: “If anyone thinks these tighter rules on mortgage lending will somehow make London prices more reasonable then they are mistaken.”
The debate around the new rules established by the Bank of England voices the controversial situation both homeowners and home buyers have to face, especially in London. How will these new limits affect the property industry? Will they prevent a further rise of the housing prices or will they determine a shift towards the already hectic rental market?
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