The Bank of
Carney said he believed there was no immediate threat to the financial system from the housing market, even though prices in
"These actions will bite if there is sustained momentum in the coming year," said Carney.
The measures put in place by the Bank would allow it to impose its first ever limits on mortgage lenders from October in the event they make it too easy to get a homeloan. But there was some scepticism that the Bank's moves would dampen the market, reflected in a jump in share prices of
Carney rebuffed suggestions the Bank was not taking swift action to tackle potential risks, saying: "This is action. We're acting early. We can do it in a way that doesn't slow the economy."
The Bank is more concerned about a potential rise in the indebtedness of would-be housebuyers who may be tempted to borrow increasing sums for mortgages compared to their income.
As well as imposing a limit on the amount lent by banks and building societies, no more than 15% of the total number of loans can be made at a 4.5 loan-to-income multiple. The Bank is also slightly tightening the interest rate being imposed on new borrowers through the new mortgage review.
Carney has already welcomed new powers announced by
Making its half-yearly assessment of risks to the financial system, the Bank's financial policy committee said: "The FPC does not believe that household indebtedness poses an imminent threat to stability. But it has agreed that it is prudent to insure against the risk of a marked loosening in underwriting standards and a further significant rise in the number of highly indebted households."
The bank is relaxed about house prices rising 20% between now and the first quarter of 2017, according to its central forecast, which has a top end of 45%. It expects annual house price inflation to remain at current levels until the middle of 2015.
Its policymakers are concerned that a rise in indebtedness could pose a risk to financial stability if customers are unable to keep paying.
In terms of loan to income, the whole market is currently at 10% and no lender is thought to be close to the 15% cap which is being readied to bite should lending criteria be relaxed.
"The measure is designed to capture risks associated with excessive household indebtedness. It is not designed to capture all aspects of credit risk associated with the borrower or the other factors that a lender might take into account for the purpose of the lending decision," the Bank said.
It added: "Although a single firm undertaking very high loan-to-income lending may not itself pose risks to the financial system, the aggregate effect of many firms undertaking such lending could pose a risk."
Through the mortgage market review – which tests customers' ability to keep paying against the expenditure – lenders are already applying a 7% interest rate , which is broadly in line with a 2.5% to 3% "stress" relative to the prevailing market expectations. The bank is now saying this should be closer to 3%.
The Bank's systemic risk system reported that "the perceived probability of a high-impact event in the
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