As politicians all over the world wonder how they are going to get out of the mire, we are beginning to see options taken that are provoking a great deal of debate. The latest is the US’s Operation Twist.
First tried in 1961 as an “experiment”, this involves the Fed selling short-term bonds and, here is the twist, replacing them with longer-term ones. The result is that as more long-term bonds are purchased, interest rates should fall.
What effect will it have on us? The markets seem initially to be unconvinced as while yields of 10-year bonds will fall, recent studies suggest, last time, the effect on mortgage rates and borrowing costs was negligible, so our problems run deeper. The key to this policy is that no new money is put into the system, so it is crucially different to quantitative easing. If swap rates do fall as a reaction to this, then, great, but will this stimulate more lending to individuals and businesses?
The Bank of England’s monetary policy committee is contemplating a new round of QE to help stimulate things, with November the favoured date for another £50bn or so.
As far as the beleaguered UK housing market is concerned, there are deeper issues and we need some radical thinking. Housing policy needs a radical overall, builders need to be supported, the North-South divide is getting more pronounced and the social issues of a population unable to move are far reaching.
The strange thing about our industry is it feels better. Is that just because broker numbers have fallen so dramatically there is more to go round? Most brokers I speak to say that things have picked up – is that just a London thing?
One pleasing aspect for brokers is not just the fact that lenders are now tapping us on the shoulders and asking for more business but the return of the smaller building societies which, not able to compete just on price, are looking for new ways to lend again. These lenders are able to eschew the tick-box mentality of banks and offer to discuss trickier cases with a real decision-maker on day one.
This lending is essential in a world where credit and risk rule the roost. We need new ideas and some radical thinking to meet the challenges.
Andrew Montlake is director of Coreco