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Financial Policy Committee (Housing Market Tools)

Volume 587: debated on Thursday 30 October 2014

The Government have today published a consultation on granting the independent Financial Policy Committee new powers over the UK’s housing market.

In his Mansion House speech on 12 June 2014 the Chancellor committed to ensuring that the 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.”

He said that the Treasury would consult on the tools, and that they would be in place before the end of this Parliament.

In response to the Chancellor’s announcement, on 2 October 2014, the FPC recommended that it be granted the power to direct the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to require regulated lenders to place limits on owner-occupied and buy-to-let mortgage lending 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 to this recommendation by the FPC, the Government are consulting on legislating to give the FPC powers of direction over LTV limits and DTI limits in respect of owner-occupied mortgages. Currently, the FPC can only make recommendations in relation to these tools. The Government intend to consult separately in 2015 on the FPC’s recommendations that it be granted powers of direction in respect of the buy-to-let mortgage market, 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.

The consultation that has been published today contains draft secondary legislation that will provide the Financial Policy Committee with the new powers of direction. The Treasury seeks responses to the consultation by 28 November 2014, in advance of laying the secondary legislation before Parliament in early 2015.

Copies of the consultation document The Financial Policy Committee’s housing market tools have been deposited in the Libraries of both Houses and published on the HM Treasury website.