Lenders may be forced to cap LTVs, says Osborne
During a House of Commons debate on the Finance Bill last night, Osborne also said the FPC would be able to do the reverse, should the UK face unwanted house price deflation.
He told the Commons: “The FPC will be able to alter the maximum LTV ratios in mortgage lending in order to curb an unsustainable rise in house prices.
“It will also be able to do the reverse, should we face unwanted house price deflation. It will also, potentially, be able to alter capital requirements for banks, in a counter-cyclical way.
“I should say that these are just possibilities; they are potential tools that the committee might want to use.”
There were rumours in 2010 that Osborne was to announce LTV caps in his Mansion House speech, something which he never did.
Last night he emphasised that measures will be independently applied, so there will be no political pressure to, say, keep a housing boom stoked up as an election approaches.
Osborne says the FPC’s job will be to act not just to moderate a credit boom but to try to alleviate a credit bust.
He says the precise tools that the government will give the FPC have yet to be determined and it will seek the approval of both houses of Parliament before it passes those tools over.
He adds: “I freely accept that we are in largely uncharted policy making territory, here or anywhere in the world. Many other jurisdictions are considering such measures, but we are ahead of most of them.
“Surely the experiment of making no attempt to moderate the credit cycle—letting the bubbles grow and burst, then cleaning up afterwards—has been an unmitigated disaster, and we would be failing if we did not look for an alternative.”
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