Bank of England Looking to Cap Mortgage Lending

Recently, the Bank of England announced that it intends to put a cap on mortgage lending as a strategy to try to stave off a second credit crunch from occurring. According to reports, the Bank wants to cut back risky lending by having those looking to buy put down a deposit ranging between 10 and 25 percent of the total loan’s value in order to be eligible.

The Deputy Governor for the Bank, Charlie Bean, said that there will need to proper restrictions in place so that the size of the lending part of the economic stabilization package does not get out of hand. Other aspects of this package, which Bean announced during a meeting of central bankers which took place in the United States, include ensuring that capital is available to keep banks afloat and interest rates are set to workable levels.

What has alarmed some is that this is the first time in recent memory that a high ranking Government official has let word slip that the Bank may get directly involved in the setting of loan to value rations in the mortgage lending market. Nothing similar to this has been seen since the 80’s when the now discarded credit controls were introduced. During this time it was very tough for those who wanted a mortgage to be able to get one.

The new regulations administered by the Bank of England for the banking industry could start as soon as this fall and would be introduced by Chancellor George Osborne. While mortgage industry professionals feel this would be terrible news, it does prove that consumers facing credit problems due to unusually high debt will most likely want to enter a debt management plan as quickly as possible. The credit rating system is now getting harsher than ever according to this news and it could be extremely tough for those who have high debt to work their way out if they do not seek a solution while one is available.