This week, the Bank of England (BoE) is mulling over proposals on tougher mortgage lending rules, according to an article on the Financial Times website. However, lenders have expressed their concerns: leveraging the ratio too high could play a part in cooling down the property market which may, in turn, push up the cost of loans. Do you think the proposals could change the behaviour of lenders?

Banks, including Nationwide, Barclays and Santander, are nervously anticipating the BoE’s considerations amongst the assumption that a ratio of at least 4% (and possibly more than 5%) will be enforced.

If the leverage ratio is 5%, the top five UK banks would need to raise a staggering £46 billion by the end of 2014. This is an especially nerve-wracking time for building societies, as, according to them, the ratio doesn’t take into account the low-risk nature of their business, and therefore penalises them.

Currently, the BoE expects the eight large UK banks to meet a minimum 3% leverage ratio. However, it published a consultation paper back in July of this year which signalled that its requirements could become tougher as it tries to find ways to make a safer system.

The BoE’s Financial Policy Committee is due to meet this week to discuss the leverage system and an announcement is set to be made at the end of October. Watch this space.

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