LONDON, June 26 The Bank of England sought to
slam the brakes on Britain's surging housing market on Thursday
by announcing a cap on home loans and tougher checks on whether
borrowers can repay their mortgages.
Following are the highlights of press conference given by
the bank's Financial Policy Committee, headed by BoE governor
CARNEY ON WHAT MEASURES WILL ACHIEVE
"(These measures) will prevent lending getting too far ahead
of income growth and they'll prevent a slide into riskier
lending and higher indebtedness that could undermine the
economic expansion over the medium term."
"These actions will bite if there is sustained momentum in
the housing market over the coming years and that's accompanied
by further sharp increases in high loan to income lending."
"The shift from responsible lending that we're seeing today
... into reckless, widespread high loan to income, high loan to
value, riskier lending tomorrow ... that can't happen because
there's a cap.
(This would) limit the amount of high loan to income lending
that can take place across the country and by extension in
"The legacy of high indebtedness and structural imbalances
mean there are financial stability risks that if left unchecked
could undermine the durability of that expansion. And the
biggest risks relate to the housing market."
"These actions don't affect the central outlook for the
economy, in fact they make it more likely to happen."
CARNEY, ASKED ABOUT PROJECTED INCREASES IN MORTGAGE DEBT
"You rightly use the word "tolerate", I wouldn't use the
word happy. This is the limits of our tolerance and that's why
there is a cap in place. We will evaluate (and) if we need to
recalibrate, we will."
"We could adjust it (the cap), we definitely could adjust it
... there's other tools that we could put in place if
"We have a broad range of additional tools that we could
use. Obviously what we're announcing today, one could change the
calibration of that if that were appropriate."
"We could activate a sectoral capital buffer. In other words
we could ask banks and building societies to hold more capital
against mortgage lending and we could do that for reasons of the
macroeconomic risk as much as reasons of the risk to the banks'
CARNEY ON IMPLICATIONS FOR MONETARY POLICY
"They're (today's actions) less likely to have implications
for the path of monetary policy, which currently anticipates
limited and gradual rate rises over the forecast horizon."
"Monetary policy does not need to be diverted to address a
sector specific risk in the housing market."
CARNEY ON WAGE GROWTH EXPECTATIONS
"Wage growth is important to all aspects of our forecasts.
It is central to the MPC's forecast.
Some of the house price recovery we would think is the
product of expectations of future wage growth. So if that wage
growth doesn't come through, some of the recovery is less
sustainable on top of that, the cap would bite more quickly and
it would (have) consequences for prices."
CARNEY ON WHETHER MONETARY POLICY COULD BE USED TO ADDRESS
FINANCIAL STABILITY RISKS
"It's sensible to be fully informed by the stress test
before we would consider doing something like that, it's also
sensible to use other targeted tools like this before we
consider doing that.
We could also activate more broadly, not just a sectoral
capital add-on for housing, the capital conservation buffer that
was referenced earlier, which we are setting at zero ... we
could just that for macroeconomic purposes.
And ultimately yes, we can use monetary policy to address
financial stability risk."
"You have to consider how much one would have to move
monetary policy in order to influence a sectoral financial
stability risk, how much longer it would potentially take to get
back to target, and whether that's a sensible strategy given
that you are affecting the entire economy to address a risk in a
sector, albeit one as important as housing, but a sector for
which you have a wide range of tools and a committee that is
mandated to address exactly these types of risk."
CARNEY ON GOVERNMENT'S HELP TO BUY SCHEME
"The FPC welcomes the Chancellor's announcement today that
no new loan at or above four and half times borrower's income
can be included in the Help To Buy mortgage guarantee scheme."
CARNEY ON HOUSE PRICES
"It is not the FPC's role to control house prices nor can it
adjust underlying structural issues related to the supply of
"What we see based on current forward indicators is we
expect momentum in the housing market to continue for the next
year or so."
CARNEY ON THREATS TO FINANCIAL STABILITY
"The FPC does not believe that household indebtedness poses
an imminent threat to stability, underwriting standards are more
responsible than they were in the past.
However, we have seen time and time again how quickly
responsible can turn into reckless, creating risk that
ultimately could derail the UK economy.
The FPC is concerned that the marked loosening in
underwriting standards and an associated significant increase in
highly indebted households could pose major, direct and indirect
risks in the future."
BOE DEPUTY GOVERNOR ANDREW BAILEY ON ENFORCING CAP
"Now you will know if you look at legislation that we have
enforcement powers available through us, on the whole (as)
prudential regulators we don't use enforcement powers in the
front of our responses. But they are there.
They are full enforcement powers and they are legal powers.
That would be in our tool kit, we have a range of enforcement
powers you can use which are to do with penalties and they can
include restrictions on business.
But as I say, as a prudential regulator, that's not my first
line of attack. Frankly I expect institutions to respond
appropriately to this."
(Editing by Catherine Evans)