LONDON (Reuters) – Regulators are watching a price war in mortgages like a “hawk” and may need to slap stricter minimum capital requirements on lenders, Bank of England Deputy Governor Sam Woods said on Friday.
The price war may be good news for consumers wanting to buy their first home, but it was less good for a bank concentrated in mortgages, Woods told the Building Societies Association.
High loan-to-value ratios and higher loan-to-income home loans can be well captured by the BoE’s capital requirements.
“But we should be watching them like a hawk,” Woods said.
Falling capital levels have been seen at lenders who use their own computer models to work out the riskiness of loans on their books and therefore how much capital to hold.
“The amount of capital being set aside to cover mortgages has been falling,” Woods said.
The BoE’s supervisors were making strenuous efforts to check on how models are being used.
“Still, I think we should approach this trend with a very skeptical eye and need to consider whether there is a case to impose more floors in firms’ models, particularly given the current stretch in some measures of house price valuation,” Woods said
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