AMI: Base rate will drop to 0.1% by end of the year

Ryan Bembridge

September 5, 2016

The Association of Mortgage Intermediaries expects the Bank of England to slash the base rate to 0.1% by the end of the year.

Its Quarterly Economic Bulletin report for the third quarter of 2016 said the 0.25% rate cut hasn’t had a major impact on its own, but with other measures such as the Term Funding Scheme and quantitative easing the bank has gone “a long way to ensuring that lending continues unabated”.

AMI felt that without the Term Funding Scheme lenders wouldn’t have passed on the rate cut to customers.

The report said: “AMI expects BBR to be as low at 0.1% by the end of the year – it’s highly likely following comments by Bank governor Mark Carney that the bank rate has further to fall.

“Whether the recent cut in the base rate contributes positively to the economy is moot. We believe that it must not be viewed in isolation from the rest of the monetary measures that Carney delivered in August.

“The new Term Funding Scheme is yet to be tested but in theory should ensure, crucially, that net lending does not fall.

“In addition to quantitative easing, corporate bond buying and the TFS, the Financial Policy Committee also reduced the countercyclical capital buffer to support the provision of credit to individuals and businesses.

“Taken as a package, these measures go a long way to ensuring that lending continues unabated.”

Looking ahead to the Autumn Statement, AMI advised new Chancellor Philip Hammond (pictured) to consider extending the Help to Buy Mortgage Guarantee Scheme to support lender confidence.

It added: “There are various policy measures that might be taken in support of a stronger housing and mortgage market – the Help to Buy Mortgage Guarantee Scheme is due to end at the end of this year which could have consequences for higher loan-to-value lending done without the support of the scheme by lenders.

“This part of the market is far more vulnerable to contraction than lower down the LTV scale for several reasons.

“Lenders are required to hold that much more capital for every high LTV loan they make and the equity cushion protecting lenders’ balance sheets from fluctuations in house prices is minimal.

“The Chancellor should not underestimate the value of extending this scheme or providing some sort of variation on it after this year to support lender confidence to continue to offer high LTV deals outside of it.”

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