Bank of England frees up £150Billion in loans to households and businesses

by Neil Patterson

12:19 PM, 5th July 2016
About 2 years ago

Bank of England frees up £150Billion in loans to households and businesses

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Bank of England frees up £150Billion in loans to households and businesses

The Financial Policy Committee (FPC) has just published its latest Financial Stability Report. In a speech given by Mark Carney, the Governor of the Bank of England, it was confirmed there is evidence that the forecast risks to the economy were beginning to crystallise and the current outlook for UK financial stability is challenging.Bank of England

To ensure there is no lack of supply of credit in the economy that could hamper growth, the Bank of England has made available £150Billion in loans to households and businesses by easing up capital requirements for banks (only for the domestic market).  This proves the strength of the reserves the banks have built up considering the total Net lending figure for the UK last year was only £60Billion.

However, the markets have handled the volatility well, and instead of adding to the problem, the strength of the banking system has helped cushion the economy from uncertainty.

It was made clear that households would be vulnerable to an economic downturn and at risk from income or interest rate shocks. It was confirmed that the average household debt to income ratio had increased recently to 132%, but the Bank of England could not confirm in numbers how many households it thinks could be at risk.

The Bank is watching closely, but not concerned that the Buy to Let market presents a particular risk to the economy. This is because of previous policies by the PRA to help restrict Loan to Value ratios and to ensure that there is no slippage in Buy to Let underwriting standards.

The Banking system has also recently been stress tested against a drop in domestic house prices of 35% and commercial prices of 30%. The Banking system passed this stress testing and the very worst predictions for the housing and property markets post Brexit are only half this figure.

The FPC said it is taking proactive action now to decrease any fragility in the financial markets and was ready to move further if necessary. The report said that maintaining foreign investment, necessary to support the UK’s historically high current account deficit, could become harder following the decision to leave the European Union because of a prolonged period of uncertainty.

Mark Carney confirmed the bank of England is doing everything it can to stabalise the economy, but there are limits to what it can achieve to avoid a recession and it needs Government to make the necessary economic policy decisions to secure future growth.

Mark Carney’s full opening statement remarks can be read by Clicking Here



Comments

Neil Patterson

12:20 PM, 5th July 2016
About 2 years ago

At least someone is left in charge.

DC

12:50 PM, 5th July 2016
About 2 years ago

"The Bank is watching closely, but not concerned that the Buy to Let market presents a particular risk to the economy."

Neil, your interpretation of what Carney said about the BTL market is in contrast to how the BBC report it;

"House prices could also come under pressure, particularly if buy-to-let investors abandon the market, it said."

I read this to mean that action may have to be taken by the Chancellor to tempt property investors back into the market by shelving Clause 24 and additional Stamp Duty etc to keep house prices and the economy buoyant.

Luke P

12:54 PM, 5th July 2016
About 2 years ago

Does any of this money ever trickle down to the lowly people? I struggle to get banks to lend at anything other than silly rates, despite the fact that the BoE on occasions has provided them with cheap money. Why do the BoE not just lend directly to businesses and cut out the banks that keep the benefits for themselves...

James Fraser

13:18 PM, 5th July 2016
About 2 years ago

Reply to the comment left by "DC " at "05/07/2016 - 12:50":

I think that's because there's two different versions of the phrase 'problems in the BTL market'.

In the first version, the BOE were 'worried' about the size of lending to the BTL market and that any future housing/financial wobble could see landlords exit the market, causing a crash (which apparently they don't want).

In the second version, a recession brought on by a post-Brexit period of uncertainty would be the cause of dipping prices, but the BOE now realise that wouldn't be caused by landlords, who are actually safe as - ahem - houses and of no risk to the economy themselves.

I also find it amusing the GO (and to an extent BOE) are doing all they can to cause the housing crash they claim they don't want, but now Brexit is the issue they find they need to lend again - and at cheaper rates - to keep the economy growing. This may indeed mean they realise their foolish errors and put them right.

Whilst we're on the subject, the Bank said rising rates in future would be the problem (not in a pre-S24 world, they wouldn't) but now, as I have predicted many times, it seems rates are staying low anyway and that we're not likely to be a problem to the economy after all.

What a surprise. I tell you, you couldn't make this stuff up. The quicker they return sanity and certainty to the market, the quicker it will recover. Of course, any crash caused by a slowdown in housing investment will be blamed on Brexit rather than GO's stupidity, but you can't have everything! ?

Sean Graveney

13:34 PM, 5th July 2016
About 2 years ago

Interesting to note Carney saying that people should think very carefully before borrowing money. That kind of statement doesn't seem to bode well for confidence driven markets such as property.

Neil Patterson

14:00 PM, 5th July 2016
About 2 years ago

Reply to the comment left by "DC " at "05/07/2016 - 12:50":

Hi DC,

This was Mark Carney's verbal response to a specific question from a reporter after his speech about the risks posed by BTL

Neil Patterson

14:01 PM, 5th July 2016
About 2 years ago

Reply to the comment left by "Luke P" at "05/07/2016 - 12:54":

Mark Carney doing a loan interview would be a scary thought lol

DC

14:02 PM, 5th July 2016
About 2 years ago

Reply to the comment left by "James Fraser" at "05/07/2016 - 13:18":

I genuinely think that the two prophets of doom, MC & GO, between them have played a major part in talking our economy into crisis, with all of the pre referendum scaremongering we were fed for the weeks leading up to the vote. What did they expect would happen in the event of an EU out scenario as the markets were already swallowing their pessimism in the lead-up to the vote? On top of this GO also tried to cover his tracks by predicting a 10 – 18% house price devaluation if we were to vote out of the EU, to gloss over the damage his meddling with the PRS had already caused post Clause 24.

It’s the last desperate attempts of a man trying to salvage something out of his lost ambitions of becoming the next Tory leader by clinging onto the hope of retaining his role as Chancellor. I’m sure he has got some more tactics up his sleeves in order to tempt his doubters within the Tory membership to keep him in post and I really worry that if May is the leadership choice, that she may keep GO in post.

I would rather see a fresh faced, pro PRS candidate that has the ability to carefully think things through before making kneejerk reactions that then have to be undone down the line. Somebody with some kind of background in finance would be nice this time round!

Neil Patterson

14:05 PM, 5th July 2016
About 2 years ago

Reply to the comment left by "Sean Graveney" at "05/07/2016 - 13:34":

Its all a Balance.

You need to provide capital to households and businesses with low gearing, whilst trying to avoid households over the 132% Debt to income ratio taking on anymore liabilities.

Mark Alexander

21:56 PM, 5th July 2016
About 2 years ago

Reply to the comment left by "DC " at "05/07/2016 - 14:02":

Do you mean Andrea Leadsome by any chance?

In my mind, the logical outcome to the leadership contest is Leadsome as PM with Boris in the Chancellor position waiting to take his seat at the helm at a later date.

I too fear a Remain campaigner such as May in the top job with GO remaining in position. If the Country is run by two Remain campaigners then you have to wonder whether they will really be up for the job at hand. It seems to me that many of the Remain voters would rather see the UK fail than to be proven wrong.

A divided Country and divided political views in all major political parties feels dangerous to me.
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