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United Kingdom : BANK OF ENGLAND introduces mortgage rules to cool off the market

June 30, 2014

The Bank of England moved to put curbs on mortgages lending with a cap on home loans and stronger checks to make sure borrowers can afford repayments.

This announcement as a policy is to prevent the housing market from overheating at some point in the future rather than a fire extinguisher.

The bank's Financial Policy Committee (FPC) said that loans of 4.5 times a borrower's income or higher should account for no more than 15% of new mortgages issued by lenders.

The bank said that lenders should apply a "stress test" ensuring that borrowers can keep up their mortgage repayments if it rises up to 3% in interest rates over the first 5 years of the loan.

Figures from the Council of Mortgage Lenders show that the UK, 9% of new home loans are for 4.5 times income or more, while this figure is 19% in London.

This indicates that the rules are to have a bigger impact on the London market, Matthew Pointon, a property economist at Capital Economics, said that is no regional restrictions, the share of loans is being handed out in the capital could rise further without the national limit being breached.

The FPC designed these measures so that they have no impact if the housing market evolves as they forecast, but will kick in if it accelerates faster than anticipated.

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Source: TendersInfo (India)

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