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‘Urgent action’ on housing needed as Bank of England announces mortgage cap

New caps imposed on mortgage lending this week by the Bank of England must go “hand in hand with urgent action” to increase supply, the CBI has warned.

CBI director-general John Cridland added that concerns had been growing around housing impacting future financial stability.

“It was good to hear the governor recommend measures to mitigate this,” he said. “However, this needs to go hand in hand with urgent action to ramp up the supply of new homes.

“This will drive growth and create jobs up and down the country.”

The BoE proposals include:

  • A new affordability test to assess whether borrowers could afford their mortgage with a 3 percentage point rise in interest rates.
  • Lenders will not be able to lend more than 15 per cent of mortgages to people who want to borrow more than 4.5 times their income.

A separate announcement by the chancellor said the Treasury will ban anyone applying for a mortgage through the Help to Buy scheme wanting to borrow more than 4.5 times their income.

Barratt Developments group chief executive Mark Clare said the proposals provided “greater stability” in the housing market, without reducing mortgage access for customers wanting to buying their own home.

He added: “Housebuilding is a long-term industry, which needs to be underpinned by a sustainable market and prudent mortgage lending is an important part of this.” 

EC Harris head of residential Mark Farmer said the measures were “prudent but essentially low impact… to avoid anyone over-extending themselves in what looks increasingly like a rising interest rate environment.”

He added “in reality” the BoE was having to implement demand-side precautionary measures since government supply-side strategies had failed to have an impact in the “required timeframes”, such as public land supply, planning reforms, Build to Rent funding and infrastructure funding.

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