The new powers will include setting the loan-to-income ratio which will stop people borrowing more than they can afford to repay should interest rates change.
One of the most common problems people face in repaying their mortgage is high interest rates making their monthly repayments unaffordable.
Another problem people face is when their house price falls below their mortgage loan, making selling the property impossible without remaining in debt.
According to the Financial Policy Committee at the Bank of England have found high loan-to-value makes up about 9% of the market compared to 25% in 2007.
Chancellor George Osborne said in a statement,
“I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing
“So today, I am giving the Bank new powers over mortgages including over the size of mortgage loans as a share of
family incomes or the value of the house.”
Buy-to-let mortgages were also under review by the FPC, who may be given powers to assure landlords rent is sufficient to cover the interest payments on their mortgage.
The FPC also reviewed the government’s help to buy scheme and assess whether it posed any risked the the economy and in paarticular the housing market.
The committee responded with their following findings,
“The scheme does not appear to have been a material driver of growth – for example, take-up of the scheme has been weak in London, where house price growth has been strongest,”
The housing market will have a significant impact on debt across the UK and in some cases which solutions people are suitable to enter when resolving debt problems.
The additional powers won’t come into effect until June 2015 but it’s still not clear exactly what they will be or how much they will help the housing market.