BoE Tightens Mortgage Lending Rules To Cool Property Market

(RTTNews) - The Bank of England tightened mortgage lending rules in order to contain property market overheating.

The bank does not believe that household indebtedness poses an imminent threat to stability, BoE said in its Financial Stability Report. But it is prudent to insure against the risk of a marked loosening in underwriting standards and a further significant rise in highly indebted households.

At higher levels of indebtedness, households are more likely to encounter payment difficulties in the face of shocks to income and interest rates. This could pose direct risks to the resilience of the UK banking system, and indirect risks via its impact on economic stability.

The Financial Policy Committee of BoE recommended that mortgage lenders should limit the proportion of mortgages at loan to income multiples of 4.5 and above to no more than 15 percent of their new mortgages.

Further, the FPC said mortgage lenders should apply an interest rate stress test that assess whether borrowers could still afford their mortgages if, the bank rate were to be 3 percent points higher than the prevailing rate during first five years of the loan.