Bank of England governor Mark Carney has suggested the Bank could act to curb mortgage lending in order to allay fears that the housing market could threaten economic recovery.
Such a move would mean that people are unable to take out mortgages that are worth many times their salary when they want to purchase new homes.
According to Mr Carney, capping the size of mortgage ratios is just one option that is currently being considered as a means of control the housing market.
He added that a watchful eye was being placed on the Help to Buy scheme to see if that was fuelling an increase in larger-scale mortgage lending.
The possibility of ‘affordability tests’
The Bank of England revealed in March that mortgages that were larger than four times borrowers’ incomes formed the largest share of new home loans – at the highest point since 2005.
Some sort of ‘affordability test’ could be implemented, while the Help to Buy scheme could also be curbed.
“We could do more, we could take steps around affordability to test whether or not individuals can test mortgages at much higher interest rates,” Mr. Carney told Sky News.
“We could limit amounts of certain types of mortgages that banks could undertake, we could provide advice – the Chancellor has asked us if we would provide advice on changing the terms of Help to Buy – all those things are possibilities and we will consider them all.”
Reducing the risk to economic recovery
According to Mr Carney, the housing market could potentially be the “biggest risk” to the economic recovery, given the large proportion of large mortgages and a possible “big debt overhang”.
He added that the real problem is the general lack of properties in the UK, as supply is not capable of meeting demand.
Prime Minister David Cameron has accepted that intervention by the Bank might be required in the future to prevent a housing bubble and stated that they have the power to do so if needed.
Chancellor George Osborne has also spoken of preventing economic instability by backing any decisions made by the Bank to “not repeat the mistakes form the past” with regards to house prices and the property market.
Financial management is extremely important, so keeping spending in check with a prepaid card is a great way of ensuring that you do not spend more than you would like.
A prepaid card limits spending to the amount on the card at any given moment and is not directly linked to a bank account, ultimately making funds safer.
The cards can easily be topped up or replaced if required, while accounts can be checked regularly online if needed.