Bank of England governor Mark Carney has dismissed Vince Cable's call to cap mortgages at three-and-a-half times a house-buyer's salary, warning that it could throw Britain's recovery into jeopardy.
This comes after the governor unveiled new measures on Thursday to cool the housing market, like forcing lenders to give no more than 15% of their mortgages at over four-and-a-half-times salary, in a move that the Bank said would have "minimal" impact on cooling the market.
However, the business secretary Vince Cable recently urged banks to limit mortgages to just three-and-a-half people's income to avoid "throwing petrol on the fire".
Meanwhile, the monthly rate of house price growth across England and Wales has halved since April as widespread talk of a possible bubble has injected more caution into home buyers' behaviour, property analyst Hometrack has today reported.
Asked why he did not go for Cable's recommended cap on mortgages, Carney told The Huffington Post UK that a limit of around 3.5 "would have been more consistent with a period of higher interest rates" and people paying off their mortgages more quickly.
Speaking later to Channel 5, Carney went on: "If we were to put in place something that was a restriction, at three times, we would restrict more than half the mortgages that are currently being underwritten today.
“That would not just slow the housing market, it would reverse the housing market. It would have implications for the recovery and would do too much, in our judgement."
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Cable has not fought back in response to Carney's dismissal, with sources stressing to the Huffington Post UK: "He's not going to get into a fight with the Governor."
Asked about the Bank's decision on Thursday, Cable told Sky News: “I drew attention a few weeks ago to the fact that some banks were lending five times people’s income and arguing that this is potentially dangerous for borrowers and the banks.
"The Bank of England is independent, they have to set rules themselves, they are the experts but this is recognition of a very real problem and a welcome step forward.”
The monthly rate of house price growth across England and Wales has halved since April as widespread talk of a possible bubble has injected more caution into home buyers' behaviour, property analyst Hometrack has reported.
According to Hometrack, property prices rose by 0.3% month-on-month in June, edging down from a 0.5% monthly increase in May and a 0.6% uplift in April, with the rate of growth to continue to slow.
Richard Donnell, director of research at Hometrack, said: "The tight supply of housing means that changes in demand can feed quickly into prices.
"As demand starts to cool so the rate of monthly house price growth has halved over the last three months. The proportion of the asking price being achieved has been steadily rising for the last 18 months but has now peaked as agents find it harder to sustain price rises.
"We expect the rate of house price growth to slow further in the coming months driven by a combination of factors. The primary factor is changing buyer sentiment in the face of an intense debate about a possible housing bubble and widespread calls for Government intervention in the market to cool price increases.
"Talk of interest rate rises in the near future has compounded the impact on sentiment and buyers expectations over the market outlook. The net result is that buyers are becoming more cautious."
Earlier this month, Chancellor George Osborne announced plans to hand the Bank beefed-up powers to control the housing market, which will eventually see it able to impose restrictions on the ratio of mortgage loans compared with borrowers' incomes, or compared with the value of their house. These new powers are expected to be in place by the end of the current Parliament next May.