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Bank of England eases curb on risky mortgages as house market cools
October 1, 2014 / 11:54 AM / 3 years ago

Bank of England eases curb on risky mortgages as house market cools

LONDON, Oct 1 (Reuters) - The Bank of England has eased a curb on risky mortgages that are large relative to a borrower’s income, amid signs that Britain’s housing market has begun to cool.

In June, the Bank of England’s Financial Policy Committee recommended that “as soon as practicable” no more than 15 percent of mortgages should be at, or greater than, 4.5 times a borrower’s income.

The BoE put out draft rules to public consultation in June to implement this loan-to-income (LTI) ratio and on Wednesday published the final version with some amendments.

The BoE’s Prudential Regulation Authority had proposed that firms which report less than 100 million pounds of new mortgage lending a year would escape the net.

In its final rule, which takes effect on Wednesday, this monetary threshold is kept but the PRA has also added a numerical threshold for contracts.

“This means that lenders who extend less than 100 million pounds in value or fewer than 300 in number of relevant regulated mortgage contracts each year fall outside the scope of the policy,” the PRA said in a statement.

This will avoid a “disproportionate” impact on “niche” lenders, the PRA said.

The Council of Mortgage Lenders (CML) said the change was sensible and practical.

“We are pleased that the PRA listened to the CML and other organisations who argued that the high loan-to-income lending limit was anomalous for niche lenders in the high net worth lending market,” CML director general Paul Smee said.

“While it is not yet entirely clear how this approach will affect individual lenders, it is a clear improvement on the original implementation proposal,” Smee added.

House prices in Britain fell last month for the first time since April 2013, mortgage lender Nationwide said this week.

The market has been cooling since the middle of the year, when regulators required lenders to make tighter affordability checks on borrowers as well as announcing the limit on high loan to income mortgages. (Reporting by Huw Jones; Editing by Toby Chopra)

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