Bank Of England Maximum Mortgage Threat

Bank of England Maximum Mortgage Threat.

New efforts are being planned by the Bank of England in an attempt to stop a future housing bubble. 

In a report by the financial policy committee they have issued a series of warnings around that quality of mortgage lending and funding. There is also no clear indication that financial stability would be affected by a bouyant housing market.

There have been some signs that the BoE could fight a house price bubble with some loan to value and loan to income caps, this put together with tighter capital rules could at least subdue a house price bubble.

It has also been noted that the BoE has brought forward the end of funding for lending mortgages to January 2014 (releasing capital to banks to lend more), this was brought forward by one year.

With mortgage lending on the rise and house prices also increasing signs are starting to show that underwriting standards are slipping. Loans are being offered at higher than the loan to income ratio and this poses a great risk if interest rates were to rise.

Comment

Talk is talk.  There is a conflict of interest, as we keep writing about every week.  The Government needs a bouyant property market for Stamp Duty Land Tax revenue as well as easing the strain on state owned banks with toxic debt.  In addition, all governments need inflation to indirectly devalue public sector debt.

Whilst we see a lot of 'sabre rattling' on lending caps and stopping a housing bubble, we beleive the Bank of England and Government will talk but let things recocer for another 2 years.