Tag Archives: Mark Carney

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.

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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

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