BoE easing of capital requirements gains mixed response

Ryan Fowler

July 5, 2016

Bank of England governor Mark Carney’s decision to allow banks to release £5.7bn from their regulatory capital buffer has met with a mixed response from the industry.

The move, which is expected to result in £150bn in new lending across the UK economy, was hailed as “great news” for the market by Saving Stream, the peer-to-peer property funding platform.

Liam Brooke, co-founder of Saving Stream, said: “Mark Carney’s announcement is just what the property sector has been wanting to hear – the additional bank lending this should free up will help support the UK’s crucial commercial and residential property markets.”

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“In the past two years, there had been a significant slowdown in lending for both commercial and residential property – especially for new developments – but this announcement should now get the banks to look again at property funding.”

“For banks, these regulatory capital constraints have meant that property funding just hasn’t been viable in the same way as it was prior to the recession.”

“Increased lending by banks is also great news for early stage financers of property and the bridging industry, because it should help to keep property prices buoyant. With many experts predicting a cut in interest rates in the coming months, residential and commercial property should also continue to be favoured as a high-yielding investment opportunity in the long-term.”

But mutual Scottish Friendly has slammed the move warning due to the uncertainty surrounding interest rates.

Calum Bennie, savings expert at Scottish Friendly, said: “Today’s announcement that the Bank of England has eased capital restrictions for banks is not the good news it may appear to be for consumers.

“The introduction of more credit to consumers will only increase household debt by encouraging people to buy goods and services they can’t really afford, especially at a time when the next move in interest rates is uncertain. Indeed, the Bank of England even today highlighted the high level of debt among consumers and the vulnerability they face from borrowing costs as a concern.

“With the pound continuing to drop in value we may see inflation begin to rise with foreign goods becoming more and more expensive to import. This, along with increased lending, could be a double blow for households as the cost of living looks set to rise in the near future.

“Consumers already feel concerned about their debts, but with a future of continued loose monetary policy, and the possibility of recession, it is important that they have savings put aside, rather than spend unnecessarily.”

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  • paul robinson

    Is not the 5.7bn capital buffer the “Capital Adequecy” required to be maintained by credit providers? Making funds available to commercial and residential sectors has to be good news as Liam Brookes comments. Calum Bennie’s concerns must also be taken on-board as history testifies increasing consumer lending in other sectors is not always a good thing. It is a crazy world where one is refused a mortgage on strict affordability criteria but then forced to pay rents far in excess of mortgage repayments!
    Fund the residential market not BTL.