Thursday, November 28, 2013

BoE reduces mortgage lending support scheme

Bank Acts To Curb Debt Risks To Economy

The Bank of England has taken its first major step to clamp down on rising house prices and ballooning household debt levels, cutting the incentives for banks to lend to consumers.

Posted by mountain goat @ 12:01 PM (4581 views)
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21 thoughts on “BoE reduces mortgage lending support scheme

  • Wow, not that is news! The Bank of England has actually done something other than hold rates.

    Expect SVR’s to tick up inline with other countries rates.

    I feel a bit sorry for those who bought and are now going to see interest rates rise.

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  • Hmm interesting.

    Moderator, if you could please post this today, and not in two weeks. Thank you.

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  • this is massive. Much bigger impact than scrapping HTB.

    I was thinking to myself earlier today that there was no way there could be 2 consecutive Aprils with sub 3% ISA rates, and it looks like I was right.

    You have to wonder why FLS applied to mortgages anyways, when it was touted as a way to boost corporate lending…

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  • Thecountofnowhere says:

    I’ve said for the last 6 months the one thing causing the current mini-boom this year is ( was ) the FLS…it’s caused a right mess for savers and I for one am glad to see it go.

    We might see a dramatic drop in prices over the next few months, especially in London.

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  • Thecountofnowhere says:

    P.S. For them to take this action…it must either mean they’ve spotted the bubble or the government realise what a vote loser hammering savers actually is.

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  • Few businesses want to borrow in this climate anyway. What chance that savers will now get a decent (ie real) return on their savings?

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  • To add – this is indeed massive news. Come on Fubra – sort out the rest of the site!

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  • mark wadsworth says:

    There’s no evidence that FLS increased mortgage lending or reduced mortgage rates, it just reduced savings rates.

    HTB is the biggie (in psychological terms, not in total amount lent). That is the one to worry about.

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  • Is this smoke an mirrors?
    Seems like the BoE really wants to do away with HTB but that is too politically hot. There is no way to spin scrapping HTB as a sucsess for the government.

    “Refocusing” FLS on SME’s though can be spun as a positive thing… and might take some of the wind out of HTB.

    Oh the joys of politics!

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  • @4 The psychological effect I will accept, but FLS definitely had a massive impact on mortgage rates.

    I know people who’ve been getting mortgages for around 2% interest. Other than the odd pre-crash-issued tracker, not a single mortgage much below 3% was issued until late last year.

    Jack C may correct me but every broker I spoke to recently said the momentum in the market was far more down to FLS than HTB.

    It also saw BTL bounce back early this year after a brief dip.

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  • noted 95% mortgages back in the market

    possibly more a response to this?

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  • mark wadsworth says:

    Reticent, OK, maybe it was FLS, I know it pushed down savings rates a lot, did it do the same for mortgages?

    But the point about credit bubbles/land price bubbles, it is not so much the interest rate as the availability of credit which does it.

    So if NR went back to handing out 125% mortgages to all and sundry without proof of income etc, even if the interest rate was 8%, it would still push up prices.

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  • I agree with reticent, FFL had a huge effect on mortgage rates. Rates in the UK are well below Europe and the USA – why is that? Is because the UK is such an economic power horse and creditworthy?
    also agreeing with mw about the 95% mortgages coupled with 30 year terms are economic suicide (which I found out to my expense),

    Like all things HPC related, it is a combination of many things: Mortgage terms, interest rates, LTV, housing supply and landlord benefit rates.

    Adjusting one single factor has little effect.

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  • Basically, what Mark Carney is saying is that Osborne’s policies to inflate the housing market in the hope of garnering more votes at the next election are stupid… Perhaps Mr Carney reads HPC. MC’s warnings over Help to Sell will have been noted too, no doubt, as will the capital ratios he’s going to be insisting the banks maintain against their inglorious lending to ‘house prices only ever go up’ fraternity.

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  • All the bank analysis I’ve read suggests FLS has had little effect on lending.

    Also looking at FLS drawdown versus the size of loan stock the amounts in question are tiny. That doesn’t mean it hasn’t had an effect in houseprices via sentiment, but I don’t think it’s had much of a real effect on the costs for banks which has then been passed on via mortgage rates.

    http://www.bankofengland.co.uk/markets/Pages/FLS/data.aspx

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  • @9 No, he’s saying that HTB has already worked to create enough momentum in the market. From now on expect people rushing to get in before rates go up, more HPI and poor value for those now buying. For a while, at least. Unfortunately. Unless I’m just being a pessimist.

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  • I’ve gotta say I’m thoroughly impressed by this.

    FLS should never have had anything to do with mortgages. Shame we had to pay a guy close to £1m/year to point it out.

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  • Regarding Help to Buy:

    This is what the politicians say:

    Conservative chairman Grant Shapps said in September: “We put the Bank of England solidly in charge of this scheme. We’ve said to them: ‘You look at this every year, and if you’re not happy with this Help to Buy Scheme, then you’ll be [able] to cancel it.”

    Nick Clegg said last month: “Of course we need to moderate it, even turn it off if we think it is not appropriate and is providing inappropriate stimulation to the housing market. That is precisely why we have transferred the right to do that to the Bank of England so they can keep an eye on it – not politicians, not George Osborne, not the Treasury.”

    What the Mark Carney, governor of the BoE, said this month:

    ‘The FPC has no power to require the Treasury to vary the terms of, or close, the Help to Buy scheme,” Carney writes in reply to a letter from Tyrie earlier this month asking him to clarify the Bank’s role. “The FPC only has the authority to make recommendations in connection with such matters … the FPC is not constrained by the government’s timetable for any such advice; it could make recommendations at any time.”

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  • GBP soared to 1.63 against the dollar. Looks like ready to break out. Gosh, I was so wrong about Sterling being about to collapse.

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  • He has become concerned about inflation and hopes to tamp it down with restrictions!

    If only there were some idea that there was something called, something like “interest rate” and let people make a decision based off that…

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  • Oh dear, looks like the banks are going to have to start offering savers better rates now this tap is to be turned off.As a consequence mortgage rates will rise.Better to get people used to higher rates sooner or later because the long term norm is around 5 -7%. This means that housing will become even more unaffordable to so many unless house prices fall, which is exactly what should have happened after the financial crises. There has been NO house price correction-YET!!!.

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