Tag Archives: Bank Of England

Financial Stability Report caps future mortgage income multiples Landlord News, Latest Articles

Bank of EnglandThe Bank of England’s Governor, Mark Carney has today held a press conference to outline new plans to stabilise  the housing market under the Financial Stability Report.

The housing market is the biggest single domestic risk to the UK’s economy, and the Bank of England is seeking to encourage long term price stability. Mr Carney was keen to stress that there is no imminent threat, but household over indebtedness due to rising house prices could threaten disposable income/spending power and hence economic recovery. This is why the last recession was so deep and lasted so long.

Current average household debt stands at 140% of income and mortgages account for 80% of this debt being by far and away the largest liability. Mortgages are also the largest single asset class for the UK’s Banks and Building societies.

The Bank of England will therefore:

  • Cap Banks to no more than 15% of their mortgage lending being above 4.5 times income, currently this is 10% so will have no immediate affect on borrowers.
  • Banks must also asses affordability of a new mortgage based on the current rate plus 3% and again many banks already do this under MMR rules.
  • No new Help to Buy loans can be agreed above 4.5 time income

If you have a mortgage agreed yesterday then today it should still be OK under the new rules.

These measures are not designed to have an immediate affect, but are geared to stop any future overheating by limiting borrowing power without needing to increase interest rates.

The Governor said that current Monetary Policy (includes interest rates) does not need to be diverted due to a single sector specific issue. Raising interest rates to curb borrowing would only hurt household spending and hence slow the economy. This way we avoid economically the tail wagging the dog.

Buy to Let mortgage rates moving down not up with Virgin! Buy to Let News, Latest Articles

Despite the Press and politicians misreporting and misunderstanding Mark Carney’s (the Governor of The Bank of England) latest comments, Virgin Money have actually reduced their Buy to Let mortgage rates for lower Loan to Values.

Mr Carney did not say interest were definitely going up this year and Virgin Money are proving that point by today releasing their new product range revisions.

Two main niche criteria for Landlords that Virgin will assist with are remortgaging inside 6 months of the original purchase date (excellent for cash and auction buyers) and First Time Landlords.

Key changes to product rates are:

  • 2 year fixed rates have been reduced by up to 0.16%, with £1,995 fee products available from 3.25% at 60% LTV
  • 3 year fixed rates have been reduced by up to 0.50%, with £995 fee products available from 4.09% at 60% LTV
  • 5 year fixed rates have been reduced by up to 0.21%, with £1,995 fee products available from 3.95% at 60% LTV
  • 2 year trackers with £995 fee now start from 3.09% at 60% LTV

A £500 Cashback incentive is available across all BTL products. Fee Saver Options, where no product fee is payable, are available fixed rate products, but the interest rate is increased relative to the length of the term.

Products are stress tested at 5.99% notional rate and 125% interest cover meaning you can borrow a maximum of 160.26 times the monthly rental income.

To Search our Property118 Buy to Let calculator and quotation engine for a range of available market products please Click Here

If you would like assistance with any property finance requirement please complete the form below and we will give you a call back to discuss how we can help 🙂Buy to Let mortgage

Form to Contact Property118

  • Please give us a few details so we can investigate and call you back


Lenders are to undergo extreme stress testing by the Bank of England Landlord News, Latest Articles

The Bank of England (BoE) is preparing to test eight UK lenders to see if they can absorb sharp falls in the housing market and rises in interest rates.

The test is to see if the lenders can withstand a 35% fall in house prices and an interest rate rise to 5%. This is not a prediction of anything to come, but part of a future examination by the EU’s banking regulator to increase the resilience of the European financial system to extreme market forces. Other economic forces will include a fall in GDP by 3.5% and a rise in the unemployment rate to 12%.

During the last banking crises and recession house prices fell by approximately 20% in the UK, so this really will be a tough test to pass.

The Lenders to be tested by the Bank of England’s Prudential Regulation Authority are:

  • Barclays
  • HSBC
  • RBS
  • Lloyds
  • Co-operative
  • Nationwide
  • Santander (UK)
  • Standard Chartered

The Treasury confirmed “The government created the new regulatory system in order to build a resilient economy and avoid repeating the mistakes of the past. Building strong and resilient banks is a core part of our long-term economic plan.”

Mark Carney, the Governor of the BoE said “much has been achieved in recent years to put the UK banking system on a sounder footing, so that it can support the UK recovery. The challenge now is to secure a strong, sustainable and balanced economic expansion. The Bank’s annual stress test will help ensure our banks support that expansion by remaining resilient.”

Similar tests carried out in the USA by it’s Federal reserve found serious issues with The Bank of America, which was then forced to cancel a planned increase in dividend to shareholders.

It will be interesting to see how our financial institutions perform against this stress testing and how it might affect the cost and availability of lending if they are forced to carry enough capital to cover these hypothetical scenarios.bank_of_england

New “Natural” Base Rate for the UK could be 3% or less Latest Articles

Over the last few weeks there has been a steady string of press releases by individual members of the Bank of England’s Monetary Policy Committee (MPC) commenting with their own thoughts of how Base Rate may rise when and to what point.

I think it is safe to assume that this has been choreographed by the Bank of England to help manage public and press expectations on future interest rates. What is becoming apparent is that the MPC are now of the opinion that even when the economy has recovered and is performing well the natural base rate will be more like 2.5 to 3% rather than the more historic 5% of the past 20-30 years.

Now Mark Carney, the governor of the Bank of England has come out with his own opinion that interest rates could (not will) hit 3% by some point in 2017. Latest opinion using the MPC’s own figures is that we are unlikely to see a rise before 2015 and that any increases would be small and gradual eg. 0.25% at a time.

During a Treasury Select Committee hearing yesterday MPs accused “Forward Guidance” of being dead and buried after unemployment fell below 7% unexpectedly. Conservative MP Brooks Newmark also quipped unhelpfully that it more resembled “fuzzy guidance”.

Mark Carney responded by saying, “we provided guidance that was well understood. Businesses indicated it gave them greater confidence in the recovery and influenced hiring and spending decisions, contributing to falling unemployment.”

“These 18 indicators are not part of the new forward guidance. They are the fulfillment of a commitment the Bank made to implement recommendations to improve transparency and forecasting. We have provided more detail about our forecasts and it allows greater perspective.”

“Interest rates will rise on a gradual and limited extent. Some Monetary Policy Committee members have put more precise figures on when interest rates will rise over the three year horizon. Charlie Bean said an increase of 2 per cent to 2.5 per cent and I don’t think that is an unreasonable sense to get across.”

Separate to considerations of future interest rates Andrew Tyrie, the chairman of The Treasury Select Committee, criticised the Bank of England for destroying MPC meeting notes as showing a lack of transparency and record keeping for historic economic decision making.

However Paul Fisher the deputy Bank Governor made the point that retaining word for word records would likely make any discussions less open and frank leading to a lower quality debate of what should happen.

I am very much inclined to agree as this has never been an exact science and we need strong opinion to be heard and debated for the good of the UK economy not stifled politically correct pandering to politicians and the press who generally do not understand or deliberately miss-interpret for a good story or political gain.3percent

Mark Carney – Top End London Housing boom cannot be controlled by Bank of England Landlord News, Latest Articles

Mark Carney, the Governor of the Bank of England, speaking on Sunday Morning’s Andrew Marr show said that London house prices were being driven out of the Bank’s control by cash rich foreign investors.

This has been discussed many times on Property118, but is the first time Mark Carney has directly raised it as a issue to quell fears that raising interest rates would be considered as an option to dampen this micro climate boom.

Mr Carney said, “the top end of London is driven by cash buyers. It’s driven in many cases by foreign buyers. We as the central bank can’t influence that. We change underwriting standards  it doesn’t matter, there’s not a mortgage. We change interest rates  it doesn’t matter, there’s not a mortgage, etc. But we watch the knock-on effect.”

Outside London the housing market has still not yet fully recovered from the Credit Crunch post 2008 and he went on to say. “What we’ve seen in the housing market is an adjustment from very low levels. So if you look at the level of transactions  how many houses are purchased, how many mortgages are struck  they dropped by more than 50 per cent from the average before the crisis. They’ve now bounced back, but they’re still more than 25 per cent below historic averages”

“But we have to be very conscious of the economic history in Britain, and there is a history of boom and subsequent bust in the housing market. That’s one of the reasons why the Bank of England has been given additional powers and one of the reasons as of last November we started to use those powers. So we’ve tightened up on underwriting standards, we’ve tightened up on capital standards, we’ve taken away special stimulus programmes that existed before.”

Mark Carney also defended the Government’s Help to Buy scheme, by saying its effect on the demand for property without increasing supply was “pretty small”.

This is why I think it is good for these sort of decisions to be taken out of the political sphere to avoid knee jerk reactions driven by ill considered popular demand.Mark Carney

Good News – GDP has grown by 1.9% in 2013 Landlord News, Latest Articles

The Office for National Statistics (ONS) has this morning reported the UK economy has grown by 0.7% in the fourth quarter of 2013 with total GDP for the year growing by 1.9%.

These are the best annual growth figures since 2007 (recorded at 3.4%) although we are still 1.3% behind the peak GDP figure in Q1 2008. We are therefore still recovering from the deepest recession in history in which GDP decreased by 7.2%.

GDP graph


The contribution an industry sector makes to GDP quarterly growth is dependent on its weighting to the economy with services contributing 77.8%, production 15.2%, construction 6.3% and agriculture

Construction output decreased by 0.3% in Q4 2013, following an increase of 2.6% in the previous quarter. Between Q4 2012 and Q4 2013, construction output increased by 4.5%. Growth figures in the construction industry although not greatly affecting the overall economy are a positive signal considering it is the lack of housing supply that is driving the price boom in London and parts of the South East.

The Office for Budget Responsibility recently revised its 2013 UK growth forecast from 0.6% to 1.4% and is currently forecasting growth of 2.4% for 2014, but if the economy continues recovering at its current pace this may yet have to be revised again.

The International Monetary Fund has also increased its growth forecast for the UK economy from 1.9% to 2.4% making us the fastest growing economy in Europe.

With GDP now nearly hitting the Bank of England target of 2% growth and inflation matching its target of 2% the recovery is within forecast plans, but still fragile due to foreign economic uncertainty. Mark Carney The Governor of the BofE has confirmed there is no pressure to increase interest rates above their current level.

I deliberately used the title Good News as I have already seen headlines by the press scaremongering without evidence over interest rates.

Consumer Price Index finally hits Bank of England 2% inflation target Landlord News, Latest Articles

The Consumer Price index (CPI) inflation rate fell to 2% in December down from 2.1% in November finally hitting the Bank of England’s target medium term figure for inflation.

CPI is the measure used by Government for targeting inflation and this is the first time since November 2009 the inflation has been at or below this target. CPIH annual inflation, which is the measure of consumer price inflation including owner occupiers’ housing costs, was actually lower at 1.9% in December.

According to the Office for National Statistics (ONS) the largest contributions to the fall in inflation came from prices for food, non-alcoholic beverages and recreational goods and services. However, these were partially offset by an upward contribution from motor fuels.

This vindicates the Bank of England’s dogged insistence for the past 4 years that inflation was being caused by external rises in the cost of imports that we have no control over rather than any domestic demand lead inflation. Had we seen the Bank of England react to this inflation by increasing interest rates before the recovery, as called for by many sections of the press, we could have seen an even deeper recession than we have already.

The good news for Landlords with mortgages or commercial loans is that for the time being there is no pressure from inflation (the main economic target) to increase interest rates.

The main stream popular press are reporting that the next thing to worry about is unemployment dropping below 7% from its current 7.4% level. The 7% figure was only used as an economic reference by Mark Carney the governor of The Bank of England to show that we should not consider raising interest rates until the economy has hit this measure. It is NOT a figure that would trigger interest rate rises on its own.

The Prime Minister David Cameron said, “It’s welcome news that inflation is down and on target. As the economy grows and jobs are created this means more security for hard-working people.”


Funding for Lending Scheme withdrawn for household market Latest Articles, Property Market News

The Bank of England have withdrawn their support for the Funding for Lending Scheme, but only to the household market.

The Funding for Lending Scheme (FLS) has been successful in reducing the cost of lending for banks in the mortgage market and contributed to a fall in the cost of borrowing to homeowners. However the Bank of England (BoE) have decided to pull back on stimulating mortgage lending by stopping the FLS scheme which allowed banks to borrow £1 from the BoE at very low rates for every £1 they lend to households.

The concern is the impact a fall in house prices would have on household and bank balance sheets if average household debt was to continue to rise. This was triggered by the latest three month figures showing average  house prices have increased by 6.9%. The BoE did comment that this was mostly localised to the South East, but they were “concerned about the prospective evolution of the market in the absence of some of these changes.”

The potential risk to UK financial stability as borrowing grows in the housing market is a consideration rather than an immediate fear and why it is prudent to take the foot off the accelerator now, but since the credit crisis the Banks have all recapitalised, so the long term risks to their balance sheets and a future crises is now much lower.

£17.6bn was withdrawn under the FLS in 11 months by banks and building societies, but lending to businesses continues to decline.

The FLS will continue to provide support to business lending by offering £5 of cheap BoE funds for every £1 banks lend and with the target for these funds skewed towards SMEs.

Mr Carney said “the changes announced today refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”

The Bank of England are being cautious with the continued recovery not to over stimulate one market by using the tools they have at their disposal with a light touch.

As ever though it is always more complicated with London being the driver of the market growth and a unique economic micro climate compared to the rest of the country. Might a possible alternative or additional solution be making foreign investors pay Capital Gains Tax. This would certainly take some heat out of the London market and increase tax revenues, but by how much, and do we need foreign investment into the country more than the problems it causes in one localised market.

Answers on a postcard please (well actually comments below would be easier).Funding for Lending Scheme

Bank of England Inflation report and what it means for Interest Rates House Prices, Latest Articles

dont panicUnlike the press DON’T PANIC, the economic news is good but not that good in the Bank of England Inflation report.

Reports of imminent Bank Base Rate rises next year are wildly exaggerated and unhelpful to the economy. We had one piece of good news on unemployment and the FTSE 100 took a tumble.

Let’s just start with the facts as CPI inflation is now down to 2.2% from 2.9% in June. This means we are much closer to the medium term targeted inflation than we have been since December 2009. The disclaimer in my previous article about the ONS CPI inflation data was that it did not include the recent energy price increases. However, I have since found out that these increases are actually smaller than at the same time last year so should have no effect on year on year figures.

If you strip out four of the big contributors to inflation: Education, Food, Fuels and Lubricants, Electricity, Gas and other Fuels     you will see that the Core underlying inflation is actually below target at about 1.4%. See table below

Bank of England inflation report

Unfortunately it has been a consumption lead recovery in the UK rather than production as we are sucking in exports from Europe quicker than we are able to expand our export trade to places like China. Hence we are running a trade deficit and not expecting a robust recovery like in the USA, because our increase in export trade has not been dynamic enough.

This can be seen in where the recovery is happening in house prices. London which is lead by the service industry and consumption has had house prices rising by 10% where the National average is 4.3%. The North where manufacturing industry has traditionally been based is seeing little or no increase in house prices dependent on the area.

The figures that got the press in a spin was the decrease in unemployment rates, because the Bank of England had indicated that it would only look at raising the interest rate if unemployment dropped below 7%. However even if it was below 7% now the recovery is not robust enough to even consider raising rates and it is expected that there will only be a 60% chance of unemployment dropping below 7% by the end of 2015. see chart to the right and below:

BofE unemploymet chart

The productivity gap where we were seeing an increase in private employment, but a much lower level of increase in output has now started to close which is good news, but to really see a long term sustainable robust recovery it is business investment that needs to increase so we can compete with emerging low cost markets.

The current figures do not show that corporate investment is increasing, but it does appear that this is changing and may be reflected in future data. Companies may be using their current reserves before seeking borrowing to invest in productivity

The GDP figures shown in the chart below are predicted to improve with growth at about 2 -2.5% per year, but this is within target for GDP without putting pressure on inflation levels or interest rates.


Predicted future inflation rates inflation rates by  the Bank of England are pretty much spot on the targeted 2% level as seen below

BofE inflation







Overall the UK economy is in a much healthier position than it was a year ago, but stagnation in our main trading partners in Europe and lack of corporate investment and exports means we have little to worry about at the moment concerning an imminent boom and a need to increase interest rates before the end of 2015 or beyond on current projected figures.

CPI Inflation down – releasing more presure on Bank Base Rate Landlord News, Latest Articles

The Consumer Price Index CPI inflation figures for October show a year on year fall to 2.2% from 2.7% in September as released today by the Office for National Statistics (ONS).

This surprise fall means that the basket of goods and services measured under CPI which cost £100.00 in October last year would now cost £102.20. We are also now much closer to the Bank of England’s medium term target inflation rate of 2%, which inflation has been above since December 2009.

The Bank of England’s new forward guidance also indicated that it would not consider an increase in interest rates unless unemployment was also below 7%. We will know more when the Bank publishes it’s latest forecast tomorrow.

Although not directly related the European Central Bank also cut it’s rate from 0.5% to an all time low of 0.25% last week in an effort to alleviate fears of deflation (price falls) across Europe with inflation now running at 0.7% against a target of 2% as in the UK. A stalling European inflation rate will have some downward pressure on UK rates as they are our largest and closest trading partner.

The largest contributing sectors to the fall in CPI inflation came from transport (notably motor fuels) falling 1.5% and education (tuition fees) increasing by 8.2% down from 19.1% last year according to ONS figures. Falling transport prices may also have affected prices at supermarkets with food inflation falling from 4.8% to 4.3%.

However it is not all good news for inflation figures as the recent large price increases by energy suppliers has yet to take effect on, but economist are not predicting the Bank Base rate to be seriously reviewed even after the recent economic upturn until late 2015.

CPI Inflation


Property Forum and News website where UK landlords and letting agents share best practice