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Is the Bank of England Doing More Harm than Good for the Housing Market?

Is the Bank of England Doing More Harm than Good for the Housing Market?

For many people considering whether to buy a house or opt to rent, the impression they receive of the state of the
housing market comes through media reports and
newspaper articles. Many reports of late have covered the cautious words of the Governor of the Bank of England, Mark Carney, on the prospect of another housing bubble and the need for tougher regulation of mortgage lending.
However, there is good evidence to show that such cautious rhetoric from the leading figure at the UK’s central bank is dampening buyer demand, especially in London.

The question that we here at Robert Oulsnam and Company must ask is whether the pronouncements coming out of the Bank of England might be counterproductive for the housing market.

The evidence contained in the Royal Institute of Chartered Surveyors’ UK Residential Market Survey shows that buyer demand during June was at its slowest since the early months of 2013. Based on their house price balance index that is based on surveyors from 12 key areas reporting
whether prices there have increased or decreased during the course of the month, the RICS survey reported a +53 per cent level of price increases, down from the figure of +56 per cent reported in May.

The strongest price gains during June were found to be in Northern Ireland and the south-east of England. More
worryingly, buyer demand in the capital was found to be especially slow during June. In London there was a drop in demand for the second month in a row – but this follows successive increases in demand over the previous 15 months. House prices have been rising continually in the previous months, but lessening demand could lead to flattening prices. Fewer surveyors now believe that there will be continued price rises over the next 3 months at least.

The suspicion must be that the tougher lending criteria and rhetoric coming out of the Bank of England is having a
damaging effect on buyer demand and the amount of enquiries. The intentions of the Bank of England are, of course,
admirable – they are desperate to avoid household debt reaching pre-credit crunch levels leading to people being left unable to make mortgage repayments.

The worry has to be, however, that buyers are discouraged and the market stutters due to the lack of demand. Already this year the Financial Conduct Authority has introduced the Mortgage Market Review that requires those seeking a
mortgage to provide extensive details of their spending to assure lenders that they would be able to make repayments if interest rates should rise.

In his Mansion House speech in June the Chancellor vowed to provide the Bank of England with powers to prevent a housing bubble, whilst Mark Carney outlined plans for the first limits on the mortgage market for 30 years with limits of 15 per cent of a bank’s lending to be provided as loans of 4.5 times the borrower’s income.

Following the RICS report, we at Robert Oulsnam and Company would suggest caution on the part of the Bank of
England in their approach to the housing market, and to remain wary of their influence over buyer behaviour.

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