Chancellor Cracks The Whip on "Excessive" Lending

It seems that Chancellor George Osborne has finally cracked the whip on what has been deemed "excessive" mortgage lending last night, blamed for ever increasing house price inflation across the UK.

After months of mounting political pressure the Chancellor has handed the Bank of England significant new powers.

The Bank of England's financial policy committee - responsible for keeping the economy safe - will have the power to cap loan to value and loan to income ratios.

It means the Bank could massively reduce the amount borrowers can access from banks.

Some banks have already capped mortgages at four times income.

Business secretary Vince Cable has openly called for a maximum of 3.5 times income.

We believe these changes could have a massive impact on the mortgage market.

We have already watched clients coping with significantly tighter mortgage rules introduced in April.

The mortgage market review introduced far stricter and more intrusive checks on individuals' incomes and expenditures.

Osborne has unveiled these new powers in addition to the mortgage regulation.


Will it stop me getting a mortgage?


We can safely say the days of reckless mortgage lending are over. To us, they have been for some time and the changes introduced in the recent Mortgage Market Review have been welcomed.

The days of boom and bust could not carry on and the FCA is doing all it can to avoid this.

The clamp has been tightened around the mortgage market as policymakers seek to end boom and bust in house prices and lending.

Borrowers will have access to lower loan amounts according to their salaries and the value if the property they wish to buy.


What about Help to Buy?


Osborne's plans run into difficulty when examining his Help to Buy scheme.

The Treasury scheme allows borrowers to lend up to 95 per debt of the value if their home.

This is effectively the maximum loan size available on the market today.

Therefore, if the Bank's powers to cap loan to values is to have any meaning then it will have to be 90 per cent or below.

Otherwise it would simply restate the existing parameters of current lending.

It is difficult to see how the two policies are compatible.

The Bank of England can advise the Treasury to end Help to Buy.

With these new powers the chance of it doing so are far greater.

Help to Buy is lost certainly on the ropes after coming under fierce criticism from economists.

We see every day a housing market that is back on its feet without the need to pour more Government help on the market.

Ending Help to Buy would be a step in the right direction.

For borrowers we are entering a hew age if mortgage lending.

As the upturn kicks in more strongly it appears regulators are not forgetting the pre-crisis years and the to Big To Fail approach of some institutions.

It of course does make life more difficult for borrowers looking to get on the housing ladder and they do face a bleaker future.

It seems a certainty that rates will rise over the next 12 months, smaller loans will be available and they may now be even harder to get.

We want our clients to be aware of these changes and to seek expert help on how to best to buy their home or remortgage.

It is a tricky business these days but arm yourself and it can be easier.