Bank may impose tougher mortgage constraints

The Bank of England could step in to impose tougher constraints on home buyers to prevent future unsustainable credit bubbles, a senior official has warned.

Charles Bean, the Bank's deputy governor, suggested in a paper presented over the weekend that measures may be introduced to stop people taking out risky home loans.

This could take the form of "imposing maximum loan-to-value ratios in the mortgage market", he said.

Speaking to the Jackson Hole Economic Policy Symposium in the US, Mr Bean said there was a role for central banks in prescribing policy to cool credit booms that "appear to be getting out of hand".

He said the problem is usually characterised by an "excessive shift" to riskier forms of lending.

Prior to the recent credit crunch, mortgage lenders edged towards greater loan-to-value ratios, sometimes offering up to 125% of the property's value to customers.

Such mortgages were party to blame for the resulting credit crunch, many experts believe.

To avoid a repeat, Mr Bean suggests that the central bank could step in and force lenders to offer less risky mortgages, with greater upfront deposits.

He wrote: "There is the option of introducing direct constraints on the terms or availability of credit, for instance imposing maximum loan-to-value ratios in the mortgage market."

His comments appear to put the Bank of England at odds with the Financial Services Authority. Last month, the city regulator told mortgage lenders that there were no grounds to ban the sale of loans above certain loan-to-value ratios.