George Osbourne: Bank to be granted veto over home

By Anil Dawar
Posted: 2010/06/16

HOUSE buyers could be refused mortgages under new Bank of England powers to be unveiled by George Osborne.

The Chancellor is preparing to hand new controls to the Bank including the authority to restrict lending to prevent another crisis engulfing Britain's financial system.

The reforms, to be sketched out in George Osborne's first Mansion House speech tonight, are set to start a revolution in the City. Previously, banks have been free to decide to whom and how much they will lend.

But the Chancellor wants the Governor Mervyn King to stop banks lending too much or lending to already over-indebted customers.

Northern Rock is thought to have collapsed because it was lending customers up to 125 per cent of the value of their homes - despite many being unable to repay the loans.

The details will emerge at a later date but they are likely to include restrictions on borrowers taking out mortgages for more than 75 per cent of the value of their home. It is hoped that the curbs will also stop price booms caused by excessive lending.

Mr Osborne's reforms will make the Bank more powerful than under Gordon Brown.

Previously it only had the power to set interest rates. The Governor's main role will, however, be to warn when the economy is becoming overheated or at risk of collapse.

Mr Osborne will also set out plans to look at whether Britain's biggest banks should be split into institutions that are no longer "too big to fail".