Bank of England may raise high-risk mortgage threshold: FT

The Bank of England (BOE) is contemplating expanding the criteria for granting higher-risk mortgages, which could bolster the UK housing market, according to the Financial Times (FT). This decision comes under pressure from lenders and the government. The central bank's financial policy committee (FPC) is evaluating whether to raise a crucial lending threshold to five times borrowers' household income, up from the current 4.5 times.

Since 2014, banks have been prohibited from issuing over 15 percent of mortgages to borrowers exceeding this loan-to-income level. A spokesperson for the BOE confirmed that the bank "keeps its housing tools under regular review, having regard to the FPC’s primary and secondary objectives." UK Finance, a bank lobby group, estimated that raising the threshold could unlock additional lending capacity equivalent to 7 percent of new residential mortgages.

The UK residential property market is facing renewed pressure due to surging mortgage costs, leading to a stagnant housing market in October. UK Chancellor John Healey wrote to the BOE, urging the FPC to "target improving access to home ownership without prejudicing financial stability" and to explore ways the loan-to-income threshold can better support this objective.

This request follows the Chancellor's decision in the October 28 Budget to double the UK's bank tax surcharge to 6 percent, generating around £1.5 billion to aid cost-of-living relief for struggling households.