Caution urged ahead of possible LTV mortgage cap
16 June 2010
The Telegraph's front page story speculating that the Bank of England will be handed wider powers to stop banks lending too much by capping LTV levels has been met with caution by The Council of Mortgage Lenders.
The Telegraph claims that The Chancellor is set to hand a host of new controls to the Bank to prevent another financial crisis.
The paper reports that the reforms set to be announced in the Chancellor's first Mansion House speech tonight will include restrictions on the loan-to-value ratios offered to customers. The paper suggests the restrictions will also curb house price booms stimulated by excessive lending.
The CML said more "logical discussion" of what objectives such a measure would be designed to achieve must take place.
CML director general, Michael Coogan, said: "We need to remember that in the UK it was not risky lending that caused the banking problems, it was banks' inability to refinance their borrowings due to the shutdown of global financial markets.
"We also need to remember that what is currently bothering most people about the mortgage market isn't high-risk lending, but the fact that lending is so constrained to low-risk borrowers that it may be making it more difficult for the economy to grow as individuals and businesses find it more difficult than they would wish to borrow."
Coogan added; "Policymakers need to be very careful to avoid trying to solve the wrong problems - the much bigger problem for the mortgage market for the foreseeable future will be in raising enough money to lend, not the risk of stoking asset bubbles through over-generous lending."