BoE Mortgage Limits Do Not Threaten UK Economy, GBP Gains

The Great Britain pound gained today as experts speculated that the measures, introduced by the central bank to reduce the number of riskier mortgages, will not derail economic recovery of the United Kingdom.
The Bank of England believes that the recent housing boom was caused by risky loans, and “this could pose direct risks to the resilience of the UK banking system”. As a result the Financial Policy Committee recommended to the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA):

The PRA and the FCA should ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5. This recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum.

This announcement did not catch market participants by surprise as policy makers were already expressing concern about possible impact of the rising number of mortgages on household indebtedness, and it was expected that the central bank would take some action to prevent housing bubble. Economists say that the measures should be beneficial for the economy and should not influence monetary policy and the interest rates outlook.
GBP/USD was up from 1.6983 to 1.7027 as of 18:24 GMT today. GBP/JPY ticked up from 172.99 to 173.11, while EUR/GBP dropped from 0.8024 to 0.7995.

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