26 Jun 2014
BoE may act today to counter housing bubble - ING
FXStreet (Łódź) - James Knightley from ING suggests that even though the BoE signaled recently that rates would remain low for now, it could take action today to prevent the housing bubble from forming in the UK.
Key quotes
"While the BoE appears to be moving in the direction of a potential rate hike later this year they still want to see more of the “slack” in the labour market being eroded before doing so. However, the housing market is causing the BoE plenty of headaches and we could see further “macro-prudential” policy action today to take some of the heat out of it."
"If a bubble develops and then bursts it could leave heavily indebted homeowners deep in negative equity and the economic growth story in tatters – hence the BoE’s concerns."
"The Bank’s Financial Policy Committee steps in with its press conference scheduled for 10:30 am UK time today. Recent warnings from Carney along with Deputy Governor Jon Cunliffe, who stated that the housing market was 'the brightest light on our dashboard' and too 'dangerous' to ignore, suggest that there is a high probability of some form of action."
"One obvious option argued for by many commentators is a recommendation to scale back the government’s 'Help to Buy' programme whereby government guarantees and interest free loans have allowed people to get into the property market that previously wouldn’t have a large enough deposit to do so."
"Mortgage Market Review measures were introduced in April which placed greater onus on lenders to ensure customers can afford to borrow. Consequently, we could see the requirement of more stringent checks on whether borrowers can actually afford the mortgage they are taking out."
"Alternatively the BoE could require that banks hold more capital against some mortgages, which would make it less profitable to lend, or intervene more directly such as with caps on the size of mortgages, either by loan to value or by earnings multiples."
"Furthermore none of this does anything to solve the underlying problems, which is a lack of supply in London and the South East. Given EU projections point to the UK population growing by 8 million people during the next 15 years, a significant chunk of which will end up in London, we will need to see an aggressive building plan to stabilise the housing market."
"So while imminent BoE action may help slow the rate of house price appreciation to some extent, the factors supporting the long-term upward move in property prices are unlikely to be tested just yet."
Key quotes
"While the BoE appears to be moving in the direction of a potential rate hike later this year they still want to see more of the “slack” in the labour market being eroded before doing so. However, the housing market is causing the BoE plenty of headaches and we could see further “macro-prudential” policy action today to take some of the heat out of it."
"If a bubble develops and then bursts it could leave heavily indebted homeowners deep in negative equity and the economic growth story in tatters – hence the BoE’s concerns."
"The Bank’s Financial Policy Committee steps in with its press conference scheduled for 10:30 am UK time today. Recent warnings from Carney along with Deputy Governor Jon Cunliffe, who stated that the housing market was 'the brightest light on our dashboard' and too 'dangerous' to ignore, suggest that there is a high probability of some form of action."
"One obvious option argued for by many commentators is a recommendation to scale back the government’s 'Help to Buy' programme whereby government guarantees and interest free loans have allowed people to get into the property market that previously wouldn’t have a large enough deposit to do so."
"Mortgage Market Review measures were introduced in April which placed greater onus on lenders to ensure customers can afford to borrow. Consequently, we could see the requirement of more stringent checks on whether borrowers can actually afford the mortgage they are taking out."
"Alternatively the BoE could require that banks hold more capital against some mortgages, which would make it less profitable to lend, or intervene more directly such as with caps on the size of mortgages, either by loan to value or by earnings multiples."
"Furthermore none of this does anything to solve the underlying problems, which is a lack of supply in London and the South East. Given EU projections point to the UK population growing by 8 million people during the next 15 years, a significant chunk of which will end up in London, we will need to see an aggressive building plan to stabilise the housing market."
"So while imminent BoE action may help slow the rate of house price appreciation to some extent, the factors supporting the long-term upward move in property prices are unlikely to be tested just yet."