Dudley News: NEIL THWAITES, of Westfields Property. "Innovation in the mortgage market is to be applauded:" Neil Thwaites, of Westfields Property

Bank of England seeks control

8:00am Tuesday 22nd January 2013

So, how was it for you ? Same as for me, probably.

Christmas, then New Year, and all too soon back to the grind.

Some things never change though, like my unbridled obsession with all matters housing.

Talking of which, pray do tell, where do you think the housing market is headed ?

Well, in the meantime, whilst you cogitate, try this for starters. The Bank of England moved this week to exert more control over the financial mechanics of the housing market. So, relax, take a deep breath and enjoy this amuse bouche: “The interim Financial Policy Committee (FPC) is today publishing a draft Policy Statement explaining the planned powers for the FPC to give directions setting extra capital requirements for the purposes of financial stability. The statutory FPC will be required to publish such a Policy Statement. A draft is being published today to assist Parliament's scrutiny of forthcoming draft secondary legislation”.

“The government is planning two such powers: the countercyclical capital buffer (CCB) and sectoral capital requirements (SCRs). The CCB supplements headline capital requirements. The SCR supplements capital requirements on exposures to specific sectors judged to pose a risk to the system as a whole”.

As it happens, the draft policy statement runs to 46 pages. So, without delving too deep into the nitty gritty, the FPC’s primary objective is to identify, monitor and take action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. Further, subject to achieving its primary objective, its actions should support the Government’s economic policy, including for growth and employment.

So, let me run all that past you again. Two powers, namely “countercyclical capital buffer” and “sectoral capital requirements”. You couldn’t make it up. Whilst this may all come across as total guff, there is a serious point underpinning the Bank of Englands reasoning. In a nutshell, the objective is to limit the risk of a rampant housing cycle by way of closer monitoring of lending activity, followed by appropriate levels of extra capital to underpin (safeguard) loans.

You will undoubtedly have your own take on all this – whether it’s a good idea, or counter-productive to a healthy vibrant housing market. My view is that it could put a brake on mortgage lending which might directly affect sales activity levels.

However, only last week, an agent in Redditch told me that he felt “it’s not all doom and gloom”. He went on to say that the recent initiative by Barclays bank to offer mortgages at 95% loan to value is a positive sign that lenders are more willing to lend.

To be fair, he has a point. A small 5% deposit will attract more borrowers and therefore more housing sales activity. The scheme relies on the trusty “bank of mum and dad”, as it allows borrowers to take out a three-year fixed-rate mortgage with a 5 per cent deposit, provided a family member deposits 10 per cent of the property’s purchase price into a three-year savings account with the bank.

This sort of innovation in the mortgage market is to be applauded, and as my trusty Redditch agent would have it, it is good news and certainly a step in the right direction.

So, as we move through 2013, stay tuned for all things housing and enjoy the ride !



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