Bank of England Loan To Value Cap

Bank of England Loan To Value Cap.

Mark Carney, Governor of the Bank of England, is still fueling debate on controlling the property market and mortgages.

 Concerns abound that there is going to be another house price bubble.  The bubble fear is being sparked by:

• Low interest rates
• Confidence returning to the property market
• Help to Buy Deposit Scheme (started)
• Help to Buy Mortgage Guarantee Scheme (starts in January)

Various commentators and professional institutions such as the Royal Institute of Chartered Surveyors (RICS) are suggesting that house prices have already increased by around 5% this year so far, with a further 3.5% rise expected by the end of the year and in 2014, house prices are predicted to rise by another 7%.

Mr Carney wants an open debate with lenders about restricting loan to values on mortgages to try and defuse a property price bubble going back to the old “boom bust” economies of old.  It was exactly this that caused the banking crisis across the globe in 2008 with many lenders left with so called “toxic debt”, house prices crashed yet mortgages were bigger than that value of the property, leaving banks in a precarious debt position.

Comment

Conflict of interest we hear you say and we agree.

The Bank of England, now it regulates banks via the Prudential Regulatory Authority for capital adequacy, wants banks to restrict loan to values and not overstretch its lending.

The government wants property prices to grow to relieve toxic debt on banking groups and is fuelling property prices increases with its Help to Buy Scheme.

We suggest this is all a smokescreen.  When property prices grow, people are confident in their wealth and businesses and will invest. 

Both the Government and the Bank of England are walking a tight rope.  They are gambling on a boom for the next two years but then we suggest that will start to control to avoid another property bubble and it probably makes sense to get all property values back to where they were in 2008 and then control property price inflation.