Bank of England 'may cap mortgage ratios'
8th Feb 2012
It is possible that the Bank of England could intervene and cap the maximum mortgages available to borrowers in order to stop another credit crisis, it has been claimed.
The potential move was announced by chancellor George Osborne, who said the Financial Services Bill would give a new Bank of England committee powers to alter the maximum loan-to-value ratios in mortgage lending to curb a "sharp, unsustainable rise" in house prices.
He explained that the new Financial Policy Committee (FPC) would "affect the bread and butter of people's daily lives" and also be able to force banks to hold more capital in order to prevent credit bubbles from growing "out of control".
Mr Osborne said that the FPC should act "symmetrically", with its job being not only to try to moderate a credit boom but to try to alleviate a credit bust.
"The precise tools we give to the FPC are yet to be determined. I freely accept that we are largely in un-chartered territory in policy making here or indeed anywhere in the world," he added.
The chancellor claimed that the "experiment" of making no attempt to moderate the credit cycle has been an "unmitigated disaster" and claimed that the coalition would be "failing" if it did not look for an alternative approach.
©Zoopla Limited.