The Bank of England has an incoming deputy governor who believes high risk mortgages getting out of hand could threaten financial stability in the UK.  The Central Bank has defined a high risk mortgage as one which has been approved in which the borrower deposits less than 10% of the value of the house and the loan equals more than 3.5 times their income.  Or, in the case of a joint borrower, the loan equals almost 3 times their income.  The approval amount of these types of loans doubled during the first quarter of the year and that has Ben Broadbent concerned.

Broadbent has expressed his concerns over the fact that even though mortgage approvals are still well below levels seen before the economic collapse of 2007, the data must be watched closely in order for a potential bubble to have little chance of forming in the housing sector.

Broadbent commented on the concerns for the financial stability of the UK through potential issues developing in the housing market, saying: “What I worry about is if the recovery in the housing market, which, in some areas is very strong, encourages an increase in mortgages, and in particular high loan-to-value, high loan-to-income mortgages, i.e: risky, mortgages that is what really matters to financial stability.”

“That, happily, is something the Financial Policy Committee can do [something] about in principle.  What it can’t do is target a particular level of house prices. That is neither possible nor is it the objective of policy.”

Broadbent added: “What really matters is debt growth on the back of it.”