Bank of England eases curb on risky mortgages as house market cools

By Huw Jones

LONDON, Oct 1 (Reuters) - The Bank of England has eased acurb on risky mortgages that are large relative to a borrower'sincome, amid signs that Britain's housing market has begun tocool.

In June, the Bank of England's Financial Policy Committeerecommended that "as soon as practicable" no more than 15percent of mortgages should be at, or greater than, 4.5 times aborrower's income.

The BoE put out draft rules to public consultation in Juneto implement this loan-to-income (LTI) ratio and on Wednesdaypublished the final version with some amendments.

The BoE's Prudential Regulation Authority had proposed thatfirms which report less than 100 million pounds of new mortgagelending a year would escape the net.

In its final rule, which takes effect on Wednesday, thismonetary threshold is kept but the PRA has also added anumerical threshold for contracts.

"This means that lenders who extend less than 100 millionpounds in value or fewer than 300 in number of relevantregulated mortgage contracts each year fall outside the scope ofthe policy," the PRA said in a statement.

This will avoid a "disproportionate" impact on "niche"lenders, the PRA said.

The Council of Mortgage Lenders (CML) said the change wassensible and practical.

"We are pleased that the PRA listened to the CML and otherorganisations who argued that the high loan-to-income lendinglimit was anomalous for niche lenders in the high net worthlending market," CML director general Paul Smee said.

"While it is not yet entirely clear how this approach willaffect individual lenders, it is a clear improvement on theoriginal implementation proposal," Smee added.

House prices in Britain fell last month for the first timesince April 2013, mortgage lender Nationwide said this week.

The market has been cooling since the middle of the year,when regulators required lenders to make tighter affordabilitychecks on borrowers as well as announcing the limit on high loanto income mortgages. (Reporting by Huw Jones; Editing by Toby Chopra)