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“Mortgages Are Not Just For Christmas” – Governor Carney on Offensive


In his strongest warning yet, this weekend the Governor of the Bank of England, Mark Carney, reiterated the fact that he believes the ongoing rise in house prices and risk of overheating represented the “biggest risk to financial stability”.

This was not helped by Rightmove’s latest report showing that asking prices, (note “asking prices”), have increased month on month by £10,000, the biggest jump since they started in 2001.

Carney went on to say that he was carefully watching the Help To Buy Scheme, which he may ask to be curbed in September, as well as looking at proposals to take the heat out of the market by tighter regulation of mortgages.

He also suggested that high loan-to-income mortgages are on the radar, stating that loans at 4.5 or 5 times income “could store up bigger problems in the future”. Last week the Bank said high loan-to-income mortgages had passed pre-crises levels.

It does look increasingly like there could be some changes as early as June, but whether this means that there will be an earnings multiple cap or acting to make these loans more expensive, as well as potentially looking at curbing high loan-to-value loans, remains to be seen.

The problem of course is whether or not any of this really has much of an effect in high demand, low supply, cash rich areas such as London. Will making mortgages harder or more expensive to get actually really effect anyone other than beleaguered first time buyers who we were supposed to be trying to help?

Help To buy, so far at least, seems to actually account for a small amount. Yet this is a nice, easy win to cut the cap from £600,000 down to maybe £300,000. At least it ensures that in the future it is targeted where help is most needed, outside of London.

Although we pride ourselves on providing mortgages for everyone, from 1st time buyers to wealthy many time movers, at Coreco our average loan size this year on purchases is around £389,000 whilst the average Loan-To-Value clocks in at around 64%. This suggests that there is still a fair amount of cash around, with some reports stating that 40% of purchasers are cash.

With the bank of Mum and Dad still going strong, foreign nationals still keen to invest and BTL landlords ever more active, any interference in the mortgage market as above, may only have a muted effect.

In fact, there are actually some signs that the market is already beginning to correct, with some agents already starting to notice that perhaps prices may be plateauing in London, as buyers becoming increasingly unwilling to pay higher asking prices.

The thing that most concerns me is the commentary that we are seeing the return of risky lending practices. This seems to totally ignore the fact that the Mortgage Market Review, (MMR), has barely had a chance to draw breath. Isn’t this exactly why we have the new rules? Surely we should give MMR a chance to work through before we wade in any further with even more draconian measures?

There is a real danger that in the haste to correct London house prices we make the whole country suffer. I guess it would be a nice change though – too much too early rather than too little too late! Either way the effect could be the same.

Yes, we need to do something to avoid a potentially dangerous bubble forming, that lets face it, if it did burst, would effect the whole country anyway, but we do seem to be repeating the same mantra ad nasueum; it is a supply side issue.

Focusing on the demand side, whether that be stimulating demand or trying to curb it does not solve and never will solve the fundamental issue; we need to build more homes! Simples!

Oh, and by the way, if housing is such an important subject, why is the Housing Minister not a full cabinet position?


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