Property experts say mortgage restrictions could kill off the burgeoning housing market recovery that has started to take hold outside
But the chancellor's attempt to cool the mortgage market has faced criticism from industry insiders. One leading broker said policymakers should wait until September before taking any decision to use the powers being handed to the Bank of
The Bank of
Mortgage brokers are already reporting signs of a cooling-off in the market because of the mortgage market review (MMR) process, which forces lenders to scrutinise borrowers' income and outgoings and check if they could still afford repayments if interest rates rose from today's historic lows. The governor of the Bank of
Smith added: "Yes, demand has been accelerating at a far greater rate than supply, but the government is at risk of placing ownership out of reach, as well as holding current homeowners hostage when they find they are unable to meet lending criteria to get a larger mortgage or to be able to move on and up the ladder."
Data from the
That figure is the median loan size, meaning half of first-time buyers are saddling themselves with bigger debts. Some lenders are offering loans of up to 5.5 times salary to borrowers who can pass the MMR's affordability tests.
The chancellor is handing tools to the FPC to help put the brakes on a market he rejuvenated with a series of measures to make loans more readily available after the 2008 banking crisis. Osborne said the Help to Buy scheme, which helps would-be buyers with deposits of only 5% of the property's value, would also be subjected any move by the FPC to rein in lending.
"All the talk of income caps comes after we have worked so hard to bring in MMR, which puts affordability at the centre of decisions, and got rid of the one-size-fits-all approach," he said.
Hollingworth said some borrowers who had passed affordability checks were able to achieve home loans of up to five-and-a-half times their income, but borrowing of around four times earnings was more normal. He said the call by
Ratio of mortgage loan to income now available for some homebuyers who pass the mortgage market review affordability tests
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