The Bank of England has waded in to the property market and announced...not a lot.
It is going to make lenders be ever-so-slightly more careful when testing whether borrowers could afford a rise in interest rates. And it has announced a cap on lending at high income multiples - but the cap would only kick in if the market really does pick up so there will be no impact at the for now.
This matters. As house prices in some parts of the country (especially London) have rocketed, concerns about a bubble in the market have grown, too.
The Bank has been hesitant to use interest rates, considered by some as a sledgehammer which would hit the wider economy, not just the nut of housing. So it has been given a suite of powers which could target housing alone.
Today’s announcement confirms the Bank “does not believe that household indebtedness poses an imminent threat to stability [...] but it is prudent to insure against the risk” that lending standards could fall.
In detail the Bank will require lenders to check whether a mortgage applicant can afford the monthly repayments if interest rates were to rise three percentage points above where they are when the mortgage is issued. In practice, the Bank says most lenders are already testing at between 2.5 and 3 percentage points above current rates so the immediate impact on the market will be slight.
It is also going to limit the number of high loan-to-income (LTI) mortgages a lender can issue. It reckons a “high” multiple is more than 4.5 times a borrower’s income – and these are risky because they expose the borrower (and lender) as interest rates rise.
So the Bank will restrict loans which are more than 4.5 times a borrower’s income to no more than 15 per cent of the overall number of loans the lender issues. In other words, 85 per cent of a lender’s loans will be below this limit and therefore less risky.
This sounds impressive but in fact across the market, most lenders only issue these high LTI mortgages to 11 per cent of their total loans and not one individual lender has issued more than 15 per cent.
I've just put the point to the Governor that this really changes nothing. "If you could get a mortgage yesterday, you can get a mortgage today," he replied. But what this does is stop reckless lending in future. It's an insurance policy.
So today, the Bank has bared its teeth but is has not yet bitten.