BoE: Mortgage market measures to be reviewed
The Bank of England (BoE) will review its mortgage market measure next year, it revealed in its financial stability report.
The measures have helped to build a ‘safety margin’ so that households are better able to withstand shocks to their mortgage interest rates, jobs and incomes, the BoE outlined.
Furthermore, the BoE said that UK banks are strong enough to support households and businesses through this difficult period.
The report outlined that banks have high levels of capital, which allows for them to take losses while continuing to lend.
The BoE detailed that by protecting the economy, it is in the banks’ own interest to continue to lend.
The FPC lowered the UK countercyclical capital buffer rate to 0% in March, meaning that banks have more capacity to lend.
To help ensure banks plan for the future and support the economy, the FPC has confirmed that it expects to keep the rate at 0% for at least another year.
In addition, the report noted that businesses have borrowed £80bn in 2020, up from £20bn in 2019.
Since the start of COVID-19, businesses have raised significant funds from banks and financial markets.
Looking ahead, the report explained that there are a number of risks on the horizon, including further disruption from the coronavirus and the transition to new trading arrangements between the UK and the EU.
Richard Pike, sales and marketing director at Phoebus Software, said: “For many, the financial fears following this year’s pandemic are overriding, but the potential threat posed by a mismanaged Brexit has similar magnitude to the UK’s long term financial wellbeing.
“Nonetheless, the BoE says it has mitigation plans in place to help the country weather any instability that comes at the end of the transition period, which offers some level of comfort.”
“However, for the general public, fiscal thoughts are more likely to be related to job security, credit availability and disposable income.
“It is evident that lenders’ appetite for high LTV lending has diminished as income levels have been hit hard by the pandemic and credit risk increases.
“So it is good to see that the FPC is reviewing its mortgage market recommendations in 2021 to reflect the changes the market will face post-pandemic.
“There is no doubt that we are in for a turbulent start to 2021 but, with the vaccine rolling out, there is light at the end of the tunnel, to get us through the pandemic.
“However, it remains to be seen how the economy reacts to the outcome of the Brexit negotiations, and the next few weeks will be telling in this area.”