Within their latest report which looks at the UK economy, the IMF have suggested that the Bank of England’s Financial Policy Committee (FPC), should be given power to cap LTV levels, in an effort to prevent property price bubbles.
The idea to cap LTV’s had previously been suggested at the beginning of the year by the Chancellor George Osborne, who claimed that providing the bank with such powers could help prevent another housing crisis. However, the suggestion was met with a mixed reaction, with some suggesting that a cap could put off homebuyers, particularly first-time buyers.
Despite the previous mixed reactions, and issues caused by introducing a cap elsewhere in Europe, the IMF said within their report: “A broader macro prudential toolkit for the FPC is desirable. In particular, the power to limit loan-to-value and loan-to-income ratios is essential, as higher capital requirements alone are likely to be insufficient to restrain property bubbles.
"This will be especially relevant if most banks are comfortably above minimum capital requirements during the boom, such that higher risk weights on property loans may have little effect on banks' lending behaviour.”
For more information, speak to London Accountants <a href="http://www.harris-lipman.co.uk/">Harris Lipman</a>
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