* For poll data see
* BoE to try and calm British housing market
* Cap on mortgage-to-income ratio favourite option
* UK economy to grow 0.8 pct in current quarter
* Growth to be between 0.6-0.7 pct per quarter from July to
By Jonathan Cable
LONDON, June 17 The Bank of England is most
likely to try and cool Britain's booming housing market by using
one of the more radical options in its toolbox, a cap on how
large mortgages can be compared to a borrower's income, a
Reuters poll found.
House prices have surged 11 percent over the past year,
raising concerns among policymakers that it could be
This prompted British finance minister George Osborne last
week to give the BoE's Financial Policy Committee stronger
powers to curb mortgage lending, enabling it to compel lenders
to act rather than to just make recommendations to the sector.
While economists polled in the past week were united in
saying the FPC would act to reduce the risks that the housing
market poses to financial stability when it meets on Tuesday,
they were less sure about what moves it would make.
The moves will be announced on June 26 alongside the FPC's
half-yearly financial stability report.
The likeliest option among economists polled by Reuters was
for the BoE to recommend that lenders limit how much they lend
as a ratio of a borrower's income. This could be politically
sensitive in the run-up to a national election in May 2015
because it may make it harder for first time-buyers to get on
the property ladder.
Until recently, the FPC had been expected to take measures
which affect home-buyers less directly, for example, by
requiring banks to hold more capital against home loans.
"They could look at loan-to-income ratios and either ask
banks to increase the capital that they hold against new lending
which is at a high loan-to-income ratio or put forward a
recommendation that banks restrict the lending they do," Allan
Monks, JP Morgan's UK economist.
A loan-to-income cap was seen by 14 of the 29 economists
Smaller numbers said the BoE would make lenders hold more
capital against certain types of mortgages, limit how many
higher risk loans a bank could issue, or ask the government to
cut the 600,000 pound ($1 million) ceiling on its Help to Buy
scheme which aids buyers unable to pay large deposits.
Since April, mortgage lenders have been required to make
stricter checks on a borrower's ability to repay, which has
slowed the process of giving loans and which lenders prefer to
relatively crude loan-to-income caps. A further option for the
FPC would be to make those checks tougher.
With predicted gains of 8 percent this year and a still
robust 5 percent in 2015, all of the economists in the poll who
answered an extra question said the Bank would act.
Governor Mark Carney cautioned last week that average
household debt was 140 percent of disposable income - higher
than in most other countries.
With the average asking price for a home at 272,275 pounds
in June according to property website Rightmove - around 10
times the typical British salary - that ratio is unlikely to
come down anytime soon.
Data from the Office for National Statistics on Tuesday
showed that UK house prices rose 9.9 percent year on year in
April, marking the biggest rise since June 2010.
THE RATE DEBATE
BoE Governor Mark Carney said last week Britain's economy
still had room to grow without pushing up inflation, but added
he saw little sign yet of a slowdown in the pace of expansion
that the central bank had pencilled in for the second half of
Tuesday's poll suggested the economy, after expanding 0.8
percent in the current quarter, would then grow 0.6-0.7 percent
per quarter, little-changed from a May poll. It indicated that
inflation would reach the Bank's 2.0 percent target early next
year - just when economists expect policy to be tightened.
The Bank of England is reluctant to raise interest rates too
fast - or too soon - in case it chokes off the recovery, and a
Reuters poll on Friday found interest rates will start rising in
the first quarter of 2015.
That poll was taken the day after Carney said rates may rise
sooner than markets expect and gave an earlier consensus than a
May 28 poll which predicted the first hike would come in the
second quarter of next year.
Such a move would make Britain the first major economy to
tighten policy since the 2008 financial crisis.
Last year the BoE said monetary policy would remain
unchanged until unemployment fell to 7 percent, something it
thought would take around three years to reach.
But that guidance was abandoned after just six months as
unemployment sank and the Bank said it would instead focus on a
wide range of measures, including how much spare capacity the
It reckons there is around 1-1.5 percent slack, and just
over half of the economists polled in the past week agreed with
that, despite it being something very hard to measure.
"Arguing about the true underlying measure of spare capacity
is a bit like arguing about how many angels can fit on the head
of a pin," said Peter Dixon at Commerzbank.
"However ... the degree of spare capacity must be slightly
smaller than when the BoE first gave its estimate in February."
($1 = 0.5956 British Pounds)
(Polling by Tomojit Basu and Kailash Bathija; Editing by Hugh