Latest BOE Announcement To Restrict Mortgages To 4.5 Times Salary In Order To Cool The Property Market

The BOE’s announcement today is a laudable pursuit but I’m not sure that they are not ‘behind the game’.

Let me explain….. the historic multiple of earnings for a family was based on one income earner and over the last twenty years, due to the changed modern lifestyle, both husbands/wives/partners both bring in earnings and, therefore, this multiple could be allowed to rise and still be seen to be a responsible action.

I’m not sure whether the quota of 15% as suggested in the statement  will be easy to police or quantify in any event, at the moment only 10% of all loans are granted on a multiple of more than 4.5 times earnings so there is plenty of head room here.

The reason why I feel that the BOE may be behind the times is that there is a slow down in the housing market presently, as evidenced by fewer mortgage applications and, therefore, is this measure necessary at all?

It could be that the BOE are being Machiavellian in their strategy by trumpeting these measures, together with higher interest rates, ahead of time so as to eliminate the need to do anything for the moment.

Personally, I don’t believe that interest rates will rise at the end of this year since this may effect consumer confidence and have a dampening effect on retail spending which could effect the fledgling recovery.

M4 (a measure of the money supply) is not out of control.  Inflation is coming down if not static.  Unemployment is dropping and the economic recovery is well underway.

With the housing market cooling what is the BOE worried about that is sufficient to want to increase interest rates anyway?

We all know that inflation is a lagging indicator and the trick is to get ahead of it.  But, even having said this, I don’t think it’s the time for action.

At Glentree we are not seeing lending institutions throwing money at the consumer with gay abandon, our experience is that they are being cautious and prudent and, in some cases, taking too long to process a mortgage offer that is putting a lag on responsible transactions which in some cases puts them at risk!

Whilst we have been saying that the market above £10million has been very difficult over the last 12 months, due to The Stamp Duty Land Tax and the spectre of Mansion Tax, activity over the past six weeks seems to have disproved this with a number of notable transactions that have taken place albeit at reduced prices.

Far from a risk to the economy, a healthy housing sector is vital as a contributor to UK growth and helps to propagate the ‘feel good’ factor that is the indefinable but an essential element to a sustainable growing economy.