It is believed that Osborne will confirm that the FSA is to be broken up, with the Bank of England taking control of financial matters through a new Financial Policy Committee. There will also be a new agency set up to protect consumers.
Speculation is also rife today that the Chancellor is set to announce that the Bank of England will gain new powers to impose limits on the type of mortgage lending that lenders will be able to undertake in the future. Imposing 75% LTVs is rumoured to be on the cards.
Responding to the speculation, the Council of Mortgage Lenders says it is vital that there should be a logical discussion of what objectives such a measure would be designed to achieve. The characteristics of today’s market are not likely to stoke risky mortgage lending, and the international and domestic measures already under way will further dampen down the appetite for risk.
CML director general Michael Coogan said: “We need to remember that in the UK it was not risky lending that caused the banking problems, it was banks’ inability to refinance their borrowings due to the shutdown of global financial markets.
“We also need to remember that what is currently bothering most people about the mortgage market isn’t high-risk lending, but the fact that lending is so constrained into low-risk borrowers that it may be making it more difficult for the economy to grow as individuals and businesses find it more difficult than they would wish to borrow.
“It may make sense – depending on the detail – for the Bank to have tools such as this at its disposal. But, it is surprising to see such attempts to target specific sectors such as the mortgage market when the new and onerous capital regime – which will be the most effective tool in influencing lending decisions going forward - will dampen risk appetite and manage risk in lending across the board.
“Policymakers need to be very careful to avoid trying to solve the wrong problems – the much bigger problem for the mortgage market for the foreseeable future will be in raising enough money to lend, not the risk of stoking asset bubbles through over-generous lending.”
The CML estimates that around 2.5 million mortgages outstanding - around a quarter of all mortgages - are for more than 75% of the value of the property.
