In 2014 the FPC introduced two recommendations to guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness. The recommendations introduced were the LTI ‘flow limit’, which limits the number of mortgages that can be extended at loan to income ratios at or greater than 4.5, and the ‘affordability test’, which specifies a stress interest rate for lenders when assessing prospective borrowers’ ability to repay a mortgage.
HM Treasury data, published today, shows that between April and September 2021, 6,535 mortgages have been completed using the scheme. Of these, 84% were purchases by first-time buyers, and the government estimates that the total value of mortgages supported by the scheme is £1.2 billion. Compared to total mortgage completions in each region, the scheme has supported a higher proportion of mortgages in the South East and Scotland, and a lower proportion in London, the North East and Northern Ireland. Research published in September found that just 15% of aspiring homeowners were aware of 95% LTV mortgage scheme.
The Bank of England's Monetary Policy Committee has voted 5-4 to increase Bank Rate from 0.25% to 0.5%, the second rise in six weeks. The MPC's minutes show that members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 0.75%. The widely anticipated rise follows an increase in Bank Rate from 0.1% to 0.25% at the MPC's last meeting in December.
With indications that the Bank of England could further raise interest rates this week, research highlights that many individuals are worried about rate rises affecting their ability to get by day-to-day. Over a quarter (27%) are concerned about the impact it will have on repayment on short-term loans such as credit cards, 35% are apprehensive about higher mortgage payments and half (51%) are worried the government will pass on the increase in tax raises. Just under four in ten (38%) said they are worried about the effect that interest rate hikes will have on their personal finances. This figure rises to half (50%) among millennials, those aged 21-42 and 43% of those aged 35-54 but falls to 23% in the baby boomer, 57-75, age group.
On a monthly basis, CPI increased by 0.5% in December. CPIH inflation, which includes owner occupiers’ housing costs, rose by 4.8% over the year. Household services, which include gas and electricity, as well as petrol, were among the biggest contributors to the rise. Economists now predict that "multiple interest rate rises" may be necessary in the year ahead.