Mortgage debt and unsecured credit saw a further increase in October in the run up to a decisive Bank of England meeting that could announce action to curb lending.
The total value of UK mortgage lending saw its biggest rise since April 2008. Lending soared by £3.63bn in October – up from £3.56bn in September. As a result the BoE is reviewing lending criteria and has stated it is ready to take action to intervene in the housing market.
Andy McBride, Business Development Director at Contractor Mortgages Made Easy said: “This is a consequence of rises in property valuations and a sign the housing market is still heating up. After the Bank of England reviews the lending criteria that firms adopt it may decide to take action to intervene in the buy to let market.”
This comes after the Bank of England made a warning to Britain's largest banks as RBS and Standard Chartered struggled in its annual stress tests. These stress tests are designed to measure how banks would cope with another financial crisis.
The Bank tested seven lenders: HSBC, Lloyds, Barclays, Santander UK, Nationwide Building Society, Standard Chartered and RBS. It found that without strengthening their financial positions in 2015, both RBS and Standard Chartered would not have been able to endure shocks to the financial system.
The BoE will also announce in March whether it will require banks to increase the capital buffer they have to £10bn. The buffer is designed to build banks' exposure to losses in positive economic times, so that it can be reduced during harsher periods.
Bank of England Governor Mark Carney said “banks will have to make profits or sell bonds or shares to fill some of that buffer.” He said that restraining credit is not what this new buffer is for but he warned that the extra capital costs will be passed on to customers - that likely means somewhat higher rates for borrowers.
The central bank did mention on a positive note that credit conditions in Britain had recovered from the financial crisis. Banks have now begun to lend less restrictively, but the bank warned that asset prices were exposed to a large rise in interest rates and risk from emerging markets.
The BoE Financial Policy Committee's report comes as the United States is due to raise interest rates later this month for the first time since the financial crisis.
Article By: Bradley George, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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