Mark Carney's New Mortgage Rules Hit Young People Worst, Says Bank

Hoping To Buy Your First Home? Here's Why Carney May Have Ruined That

Mark Carney boasted that the Bank of England was acting on fears about Britain's roaring housing market by forcing lenders to hand out at most 15% of their mortgages at sizes worth four-and-a-half times the house hunter's income.

“Because we’re acting early, we don’t have to reverse mistakes that have been made,” Carney explained. However, the Bank's own analysis admits that young people, who most need generous mortgages to get onto the housing ladder, would be worst hit for "legitimate" reasons.

"To the extent that underlying strength in the housing market turns out to be greater than expected and the limit bites, it may impact those of a younger age more substantially as it is this group that is more likely to seek such mortgages," the Bank wrote.

They stressed that the limit was not an "absolute bar" on lending, adding: "Unlawful discrimination does not occur if the less favourable treatment afforded to a particular group is a proportionate way of achieving a legitimate aim."

Young people in London will be even more under pressure, as the limit on the loan-to-income (LIT) ratio for mortgages will most heavily apply in the capital.

The Bank of England's own analysis shows that over 20% of new mortgages handed out by lenders for house purchase in London are at loan to income multiples at or above 4.5, meaning that such activity will be reined in when the rules come into effect from October.

Around the UK as a whole, mortgages at LTI ratios at or above 4.5 are still below the 15% limit, at around 10%. So young people outside of the capital will still be hit by Carney's moves, but spared the brunt of the impact.

Dan Wilson Craw, spokesman for the Generation Rent campaign, warns that Carney's move will be of little help to young people trying to get onto the housing ladder.

“We do need action to keep a lid on house prices, but all this announcement does is shut young people who want a place to live out of the market which will be dominated even more by speculators with vast reservoirs of cash and no need for a mortgage," he told the Huffington Post UK.

"To really make a difference to the cost of housing we need to build more of it and also improve our inadequate rental market so that people don’t feel pressured into taking on frightening levels of debt in order to escape it."

Warwick Business School professor Ben Knight says that young Londoners would be "especially hard hit" as 'they're at the point in their lifecycle in which they are not earning very much and have large outgoings".

On a cautiously optimistic note, Professor Knight adds: "If you're in a position to be looking to buy your first house, I'd be slightly worried. This will make things a lot more difficult for you, but it won't make it impossible."

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