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Bank of England warns on housing market as it relaxes capital rules


The Bank of England has warned the housing market could pose a risk to the UK’s financial stability as it moves to free up £150bn of extra bank lending to protect against Brexit aftershocks.

In its financial stability report, published today, the Bank says current housing market health is hard to judge due to the distorting effects of the March rush to avoid the rise in stamp duty.

But it says: “Nevertheless, the Royal Institution of Chartered Surveyors survey showed that expectations of housing market activity and price growth slowed sharply in May. New buyer enquiries in May were at the lowest level since 2008.”

The report says vulnerable households are a possible risk to the health of the UK economy.

It argues restrictions imposed by the Financial Policy Committee on mortgage underwriting have curbed levels of UK household debt.

But it adds: “However, the ability of some households to service their debts would be challenged by a period of weaker employment and income growth.

“These vulnerable households could affect broader economic activity by cutting back sharply on expenditure in order to continue to service debts.”

The report adds the Bank is also worried the actions of buy-to-let investors could harm the economy.

It says buy-to-let landlords had the potential to “behave procyclically, amplifying movements in the housing market”.

The central bank says it will keep monitoring the behaviour of buy-to-let investors to protect against future economic shocks.

The Bank has also moved to relax the requirements around the amount of capital banks have to hold.

In March the Bank said its counter-cyclical capital buffer, the amount held in reserve by banks which can be deployed in a downturn. would rise to 0.5 per cent. But today it axed that decision, cutting the rate to 0 per cent with immediate effect.

It plans to keep this in place until at least June 2017.

The Bank also says Brexit economic risks have already “begun to crystallise”.

It says: “The current outlook for UK financial stability is challenging.

“There will be a period of uncertainty and adjustment following the result of the referendum. It will take time for the UK to establish new relationships with the European Union and the rest of the world. Some market and economic volatility is to be expected as this process unfolds.”

The Bank also promised further intervention if needed.

It says: “The FPC stands ready to take actions that will ensure that capital and liquidity buffers can be drawn on as needed, to support the supply of credit and in support of market functioning.”



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There are 11 comments at the moment, we would love to hear your opinion too.

  1. sanjay sanjay 5th July 2016 at 2:06 pm

    Two weeks ago these comments would have been seen as “scaremongering”. Mark Carney is probably one of the best Central Bankers in the world, but even his competence I fear will not be enough to avoid recession.

    The biggest mistake of government was to give unqualified people the right to vote on something that requires an in depth knowledge of several issues, to make an informed decision.

  2. Sorry Sanjay I do find your last comment at offensive. Everyone in this country is entitled to a vote and everyone providing it is not offensive to voice their opinion. Perhaps, you should be venting your scorn on the politicians who presented a poor and inept discussion of the pros and cons of leaving or remaining in the European Union
    One thing is for sure many of those people who voted leave did so for valid reasons and to you to say that they are illiterate and unqualified to vote.
    I know a number of successful businessmen who voted to leave. So they are now in your words incapable of making a informed decision.
    For your information I voted to remain in, as much as I despise the EU its structures and was certainly not one I voted for in 1974 I have not much love of the EU but I thought it was more pragmatic to be in the club and negotiate rather than leave.

    • sanjay sanjay 9th July 2016 at 9:23 am

      J Clancy, my reference to unqualified people did not single out Brexiteers. It applies across the board. This was a decision that should have been made by parliament.

      I can confidently say that most IFA’s will have voted remain. Personally I have come across many entrepreneurs who have invested this country, who add value to our economy rather than destroy it. What message does the immigration debate send to these people. I will tell you for a fact, it put’s them off investing in this country and creating jobs in a period of uncertainty.

      The main point though is our economies health is so dependant on a healthy property market, it beggars belief that people have voted to destroy this wealth. Ironically the people who voted leave that will suffer the most are the working classes from places like Sunderland and Middlesboro, who work for Nissan, Toyota etc etc.

  3. @ J Clancy.

    Sanjay is right. Just look at some of those who voted out. You have seen them on the media and TV. Their like has not been seen in the Remain camp. The disgraceful racist actions by a small minority are indicative of the views of many. It isn’t offensive to tell the truth.
    There may well have been successful businessmen who voted leave, but they were far outnumbered by the Remain. Over 100 Professors of Economics (including Nobel Laureates) advised Remain. Yes, I know they are not infallible, but when that much brain power is on one side it is wise to take notice.
    You too are right we should be venting our scorn on politicians. This Referendum was only held to placate some fractious individuals in the Tory party. Moreover the Referendum has no legal status and a Parliamentary vote would probably err on the side of not triggering Article 50, as the significant majority of MPs are in favour of remain.
    Glad you voted the right way, but I fear we will eventually ‘reap the whirlwind’ brought on us by those Sanjay has described.

  4. I could not disagree with you more. The people have voted to leave and for legitimate reasons. I think Sanjay’s comments are arrogant at best and dangerous at worst; to suggest that a majority of views from the widest spectrum is less insightful than one isolated groups view is folly. Politicians often play games for their own agenda’s and benefit and blame the public for being ignorant and voting for them when they get caught out.
    History tells us that many leaders starting with good intentions allow ego to over-rule true democracy when left unchecked, from Hitler to Thatcher to now Osborne, ego is dangerous when left unchecked and often the Mark Carneys of this world slope off when the praise ends abruptly. Fred Goodwin, Tom Mathewson etc had all once been considered genius bankers, best in the world and worth every billion they squandered.
    Two points I suggest you consider 1. Government does not give the people the right to vote, the people give the government the right to administer their will. 2. A slump in the markets today does not mean as a Nation future generations will not benefit hugely.
    The outcome is yet to be proven but as surely as past governments and expert quango’s have got it wrong the jury will be out on this for years to come.

  5. Once the Brexit result was announced it was inevitable it would be used as an excuse for the unwinding of all manner of ills and imbalances already within the financial system, both in the UK and globally.

    Brexit is not the cause of these Commercial and Residential Property headwinds, just the catalyst for the issues to be exposed, and a rather timely “reason” for Mr Carney, who would not be doing his job correctly if he didn’t exploit this unexpected opportunity.

    Liquidity issues in Commercial Property funds was a core subject covered at an L&G Seminar I attended back in April, when Brexit was seen as a very slim prospect. L&G’s Multi-Index funds had already stopped adding new money to their Property fund to try and head off liquidity issues within these multi-asset staples.

    The L&G Property fund manager revealed she was buying properties yielding under 4% p.a. – the same yield as a consumer staples blue chip share that can be sold with the push of a button, some of us quietly observed.

    The residential property market seems to have gone through a time of collective memory loss. The notion that it can continue spiralling upwards at near 10% p.a. compound is absurd. History tells us that it never simply levels off, but perhaps “it is different this time”?

    We will know if a vote for Brexit was the right democratic decision in 5 or 10 years time, a period when the EU and its member countries too will have to face-up to all kinds of economic and demographic challenges.

    Right now, to blame the potential bursting of QE and ultra cheap debt-fuelled bubbles on this one single event (that may not even come to pass in practice) is no better than blaming the Canary in the coal mine.

    • Correct Mark. I for one voted to leave. For 40 years we have been in a club that has been failing (from the time it moved on from being a club which was open for commercial benefits) since political union came in. EU is an economic basket case, unfit for purpose other than to feather the nests of those who want to keep it intact (by force if necessary). If it was such a great experiment and so successful why would Frau Merkell and co be so scared that contagion of the exodus of the UK could happen??? If it was such a great deal, why would anyone else want to take the “ludicrous” decision to leave? Surely every member state would be championing to stay? Maybe its because it has been such a failed political disaster. They have screwed the southern mediterranean countries with enforced additional debt, crippled the same countries with the failed Euro and chose to ignore Denmark and Netherlands referendum results to disagree with with the Lisbon treaty. They denied their were discussions coming up about having an EU army, the lied about expediting Turkey’s accession to the EU. It was going to cost the UK an extra £1.8 billion to get Turkey into the EU, never mind what it was going to increase our membership fees by to maintain the other countries who are coming in.
      Time will tell whether it is to our advantage to have come out of the EU. Personally I think it will be however I would rather we failed outside it and on our own terms than fail within it on someone else’s terms. And it will fail, of that I am certain. We are the first to leave but will not be the last, that is for sure

  6. Oh how nice it is, for people to be so high and mighty from their lofty roof tops to resort to name calling and make assumptions, because things didn’t go their way or they are so right every-one else is wrong

    You are more than welcome to label your can of beans, but not me !

    At the end of the day it was a majority vote from people who have EVERY RIGHT to make their opinion known and know its actually counted ! UM ? its called a vote for a reason !

    This is far better than having your minds made up by self serving bunch of hypocrites who think they know what is right for every-one !

    Don’t like it ……….. move to North Korea ! birds of a feather, and all that !

  7. Just a minor point Sanjay but presumably you voted to ‘remain’.
    Had the result been reversed would you still have been complaining that ‘unqualified people’ had voted the way you did?
    I don’t think so. More likely you would have been applauding the majority of the ‘intelligent’ British electorate for voting ‘remain’!
    Your point of view is valid but the majority have not agreed with you. Please accept!

  8. @ J Clancy
    To be fair Sanjay did not say anybody was illiterate. I think you have gone a bit over the top there. I think what he was trying to put over is that it is a very complex issue, and that almost nobody can be sure what will happen in the short and long term; especially most of Joe Public, and I include myself in that. If we hadn’t had so much negativity about the EU from conservative politicians (including DC) and much of the media over many years the result may well have been different. Hoist on their own petard I think you could say. Personally I think there is a lot of corruption in the EU, but so there is in the UK. I would rather have stayed in and continued to fight for change than leave, however, which I feel is a backward step when we would prefer unity across the continent.
    I think Mr Putin must be quite pleased though.

  9. I would echo Mark Cooper’s post. Brexit may be a catalyst but it won’t be the cause of any falls.

    “The central bank says it will keep monitoring the behaviour of buy-to-let investors to protect against future economic shocks.” Can someone please explain to me how the BoE can stop landlords selling their properties?

    If B2L investors sit tight on their investments then things may be OK, but if they follow in the fickle footsteps of some commercial property investors and sell out now, that may exacerbate a fall.

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