The announcement from the Bank of England regarding the maximum amount of mortgage lending possible for a new house should help borrowers from taking on too much debt and subsequently run into trouble later.  The announcement should also help keep prices under better control from this time forward.  The announcement comes on the heels of many economic indicators within the housing market pointing toward a potential housing bubble.

The new lending rules announced by the Central Bank will become active for all loans from October 1.  The highlight of the announcement affects those attempting to borrow more than 4.5 times the ration of loan to income.  Mortgage lenders will not be able to loan funds to more than 15% of their total new house mortgages to these borrowers.

Currently only 9% of new mortgage loans sit at a loan to income ratio higher than 4.5 times income.  In London however, this ration balloons to almost 20% according to the Council of Mortgage Lenders.

The protective cap devised by the Bank of England encompasses most borrowers who currently own a mortgage.  The limit will ultimately be relied on to help regulate loans which will be approved for houses in the future.  The amount of house owners getting into trouble with their loans should be greatly reduced from the October activation period.

The new cap rules placed on mortgage loans after October 1 could potentially limit many banks on how much they approve, but will likely keep many house owners from running into trouble.