LONDON (Reuters) – The Bank of England said on Monday that it wanted to remove a requirement that mortgage borrowers must be able to afford a 3 percentage-point increase in interest rates, in a move which could help home-buyers.
The BoE said its Financial Policy Committee (FPC) believed that a requirement for most mortgages to be limited to 4.5 times a borrower’s income, combined with separate affordability rules from Britain’s Financial Conduct Authority, would be sufficient.
“The FPC therefore intends to maintain the LTI (loan-to-income) flow limit Recommendation, but consult, in the first half of 2022, on withdrawing its affordability test,” the BoE said alongside the publication of its half-yearly Financial Stability Report.
The BoE also said it would increase the counter-cyclical capital buffer (CCyB) banks must hold to 1% of risk-weighted assets from zero currently, with effect from the end of next year, and possibly raise it again to 2% subsequently.
The BoE has kept the CCyB, a buffer built up in good times for release during downturns, at zero to help banks continue lending to households and businesses during a historic recession last year caused by the COVID-19 pandemic.
The British central bank acknowledged the risks to the economy’s recovery from the pandemic posed by the Omicron variant of the coronavirus.
“There are near-term pressures on supply and inflation, and there could be a greater impact from COVID on activity, especially given uncertainties about whether new variants of the virus reduce vaccine efficacy,” the BoE said.
The BoE’s separate Monetary Policy Committee is due to announce its latest decision on interest rates on Thursday. Investors have rowed back their bets on a rate hike this month because of the uncertainty posed by Omicron.
(Reporting by David Milliken and Huw Jones; editing by William Schomberg)
