Home Funding chief executive Tony Ward believes the Bank of England does not want to encourage mortgage lending for fear of inflating the housing market.
Last month, the UK’s biggest banks signed an agreement, called Project Merlin, with the Government to make £190bn available in gross new lending to businesses this year, with £76bn to be made available to SMEs.
However, Ward believes mortgage lending was not included in Project Merlin as the BoE wants to reduce debt in the housing market.
He says: “I have concluded the Bank of England does not want to encourage banks or building societies to lend in the mortgage sector. On a macro global basis, everything is overleveraged and over- leveraging gives rise to asset bubbles. What that means in the UK is we have got one of the biggest asset bubbles in what I think the Bank of England would see as the housing market.”
He says “the last thing” the BoE wants to do is encourage people to take on more debt at the present time.
He adds: “I think the Bank of England would rather see further levels of deleveraging and a further reduction in the asset bubble in the housing market. The last thing they want to do, if I am correct, is to encourage much more lending, particularly at higher levels, because it will encourage the leveraging of consumers.”