Comment: Simply a sensible policy adjustment

Martin Flanagan. Picture: Adrian Lourie

Martin Flanagan. Picture: Adrian Lourie

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THE Bank of England’s decision to pull the plug on its Funding for Lending Scheme (FLS) as far as it relates to mortgages is a surprise, but not a shock.

There has been clear evidence of a nascent housing bubble developing over the past year, following on from the FLS being launched to boost lending to homebuyers and small businesses in July 2012.

British house prices have risen about 6 per cent this year, and housing industry experts believe a similar rise is likely in 2014.

The main house price gains have been in London, responsible for about 25 per cent of the UK’s economic output, and parts of the south-east of England.

But it is now spreading out to the English regions as well, and Scotland is unlikely to be immune. Therefore, the Bank of England is right to nip this bricks-and-mortar inflationary bubble in the bud. The economy is recovering well enough on its own to provide a following wind for the housing market.

The Help to Buy housing scheme remains in place, taking up some of the slack in supporting the housing market directly from the FLS. And the Council of Mortgage Lenders said yesterday that its members were well-equipped to meet their funding needs.

Both retail deposits and wholesale money markets are much more robust than they were during the 2008-9 recession. As such, the slump in housebuilder share prices yesterday looks kneejerk and overdone.

It is true central bank governor Mark Carney has changed his tune since the summer when he was telling public audiences that he did not fear a bubble developing because mortgage demand, while freshening, was still not near pre-crash levels in 2007-8.

Carney now says that, although he still does not see any “immediate threat” of a housing bubble, “the concern is where this could go”.

This should not be castigated as a Bank U-turn; it is rather a highly sensible action by the central bank after monitoring the gathering house price momentum to forestall another crash.

As John Maynard Keynes said: “When the facts change, I change my mind. What do you do, sir?”

Carney has also kept some powder dry in case a further damping down of the housing market is needed.

The governor says further action could include a cap on how big mortgage loans can be relative to property values and borrowers’ salaries. All welcome.

The Bank of Eng;and has not taken this action because we are back in the bad old days of Northern Rock and 120 per cent loan-to-value mortgages, self-certification being given its head, etc.

It looks more like a case of the Bank judging that a stitch in time may save nine.

Oh thee of little faith in the ‘ethical bank’

THE Co-op Bank is losing current account customers, it admits. Tsk, tsk, sometimes one’s spirits wilt at the sheer fickleness.

A chairman on hard drugs who doesn’t know how much the bank has out in loans by a very, very big margin. A £1.5 billion hole in the balance sheet. A screwed-up takeover (Britannia) and a failed one (Lloyds branches).

A governance structure that would not look out of place in an Ealing comedy (“I think we do really need a plumber on the board in terms of social inclusion”). An ethical bank that is set to have hedge funds calling its shots. No likely profits for years.

Just what point are these fair-weather customers trying to make?

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