By Ed Conway, Economics Editor
The Bank of England is to be given effective control over the loan-to-value ratios of mortgages eligible for the Government's new Help to Buy scheme, it has emerged.
As of next September, the Bank's Financial Policy Committee will be able to impose swingeing fees on high-debt loans in the Treasury's mortgage guarantee scheme, potentially ruling out 95% loan-to-value products.
The news came after the Chancellor announced that he will give the Bank the right to review the scheme on an annual basis, instead of only after three years, as had been originally intended.
Under the original conception of the scheme, in which the Treasury will part-finance deposits to help prospective homeowners onto the housing ladder, buyers would only have to provide a 5% deposit, with the Government helping provide a further chunk.
However, Sky News understands that in an annual review, starting next September, the Bank will also be able to call for a specific increase in the fees banks will have to pay if they want to lend out a 90-95% loan-to-value mortgage.
Although the Bank only has the power to recommend the fee changes, Treasury insiders say they would be highly likely to implement them.
The other lever the Bank can pull is to recommend lowering the price of properties eligible for the scheme from £600,000.
According to documentation sent out to mortgage lenders, banks will be charged three different fees depending on the scale of loans they plan to extend under the scheme: one for an 80-85% loan, one for a 85-90% loan and another for a 90-95% loan.
Should the Bank's FPC become concerned about households overextending themselves, they could recommend an inordinate increase in the fees for the highest debt mortgages, effectively ruling them out in the market.
The development underlines the scale of concern in the Treasury and Bank that the Help to Buy scheme could have the potential to overheat parts of the housing market which already look unaffordable.
Research by Sky News has found that the average property in Kensington & Chelsea is now worth almost 30 times the average salary of those living in the area; this compares to an average ratio of 6.1 times across England and Wales.
According to Nationwide house prices rose by 4.3% in Britain over the past year – though the increase in London was 10%.
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