The Bank of England has introduced limits on high LVR lending and imposed stress testing on prospective home-buyers.
In an effort to cool the UK’s overheating housing market, the BoE’s Financial Policy Committee (FPC) last week announced that lenders must ensure no more than 15 per cent of new mortgages are given to people borrowing more than 4.5 times their income.
British banks will also have to stress test borrowers’ ability to repay loans in the event of a three per cent rate hike.
Commenting on the recommendations, a Financial Conduct Authority spokesperson said the prudential regulator would consult on general guidance that will provide details on how it proposes to follow the recommendation on LVRs.
The news has sparked concern for mortgage lending back home, with fears that APRA could follow in the FCA’s footsteps.
Last week Business Spectator highlighted the ‘neat coincidence’ of the BoE measures and the release of a report by credit ratings agency Moody’s warning that Australia’s housing market is overheating.
“The BoE’s concerns are near-identical to those that have been voiced here,” according to the Business Spectator.
“The ultra-low interest rate environment coupled with a constricted supply of new housing, population growth and the growing presence of DIY investors and foreign buyers is driving up the prices of established homes – and is leading to higher loan-to-valuation and loan-to-income ratios.”