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Charlie Bean, the Bank’s Deputy Governor, said “direct constraints” may be needed to restrict access to credit, and that homebuyers could be forced to put down sizeable deposits before being granted a mortgage by their banks or building societies.

 

This would  mean that prospective buyers would have to put down between 10 per cent and 25 per cent of a property’s purchase price as a deposit before being able to obtain a loan.

 

The Bank of England should be given the binoculars it needs to spot the next asset bubble in waiting.

It is the first time that a senior official has indicated that the Bank may intervene  directly with new rules on so-called “loan to value ratios” to stop risky lending. In the  years before the credit crunch, some borrowers were lent 125 per cent of their property’s value and became stuck in negative equity when prices crashed. The move would also mark the  return of so-called “credit controls” — scrapped in the early 1980s — which made it  difficult for many borrowers to get a mortgage.

The Bank of England is expected to be given responsibility for regulating the overall banking market in the autumn after new laws are introduced by George Osborne, the  Chancellor.

Over the weekend, Mr Bean published a policy paper at an international conference detailing  how the Bank would approach its new role. There had been speculation earlier in the summer  that Mr Osborne favoured a “mortgage cap” although he has never publicly discussed the scheme.

Last month, the Financial Services Authority, the current banking regulator, said that a  policy of limiting mortgages was “too blunt” and could “unfairly deny” loans to  creditworthy Britons.

But, in a speech to other central bankers in America, Mr Bean raised the prospect for the  first time of the Bank restricting the size of mortgages as part of a package of measures  to stop the economy overheating.

He indicated that, in future, the Bank of England should take a multifaceted approach that  included setting interest rates; ensuring banks had sufficient capital to stop them going  bust; and intervening directly to restrict mortgages or other credit. After describing the  other policy measures, Mr Bean said in his speech: “Finally, there is the option of  introducing direct constraints on the terms or availability of credit, for instance  imposing maximum loan-to value ratios in the mortgage market.

“The best approach seems likely to involve a portfolio of instruments.”

He added: “In particular, a number of developing and emerging economies have experience in  applying some of these instruments, while there are also lessons to be drawn from the past  experience of some advanced economies too.”

It is not clear from Mr Bean’s comments whether such “constraints” would only be introduced  during a housing boom or whether the Bank may seek to limit the size of mortgages at all  times.

Until the early 1980s, banks were only allowed to lend money that had been deposited by  savers, therefore mortgages were effectively rationed. However, these rules were scrapped  by Margaret Thatcher’s administration, which allowed banks to raise money for lending from  the money markets.

During the credit boom, more than 300 mortgages were available that allowed borrowers  access to 100 per cent of the value of their home. Some borrowers were offered up to 125  per cent. Thousands more schemes were available for those with deposits of 10 per cent or  less.

These high “loan-to-value ratios” have been blamed for exacerbating the boom and bust  cycle.

An FSA analysis of the mortgage market published last month concluded that simply banning  high loan-to-value mortgages was not appropriate. It instead recommended that banks be  forced to ensure that potential borrowers were able to afford the repayments on loans. It  is currently consulting on its proposals.

The suggestion of a cap on lending alarmed mortgage experts who said they feared that the  rationing of home loans would stop first-time buyers getting on to the housing ladder.

David Hollingworth, of London & Country Mortgages, a broker, said: “The mortgage market is  still very slow and the biggest hurdle at the moment is boosting the availability of home  loans, not restricting them. Very few first-time buyers can afford a big deposit so its  important that they are not excluded.

“The market has already self-corrected and there are only a very small number of mortgages  for those with a deposit of less than 10 per cent already.” Mr Osborne’s office made no  comment on the proposals last night.