Sunday, 23 January 2011

Bank of England has concern over the low number of mortgages

In the Daily Telegraph ( )today is news on how the Bank of England has Concern about how the shortage of mortgages is likely to have an adverse impact on the housing market.

'Bank of England policymaker Adam Posen has told Bloomberg that he sees a “downside” risk to the UK housing market due to the lack of credit for first-time buyers and “very low” levels of home sales.

House prices rebounded last year from their worst slump since the early 1990s, as the Bank's Monetary Policy Committee held the interest rate at a record low of 0.5pc, however demand for mortgages weakened. Data last week from the Council of Mortgage Lenders showed mortgage advances for 2010 sunk to their lowest level in a decade.

“You look at the difficulty many first-time buyers or younger people have in getting mortgages [and the] very low volume of transactions – these to me are things saying ‘I am much more worried about a downside risk to the housing market from here than any further appreciation,’” Mr Posen told Bloomberg.

“My view is two things have supported the UK housing market in the last couple of years,” Mr Posen said. “One is our interest-rate cuts and quantitative easing directly affecting mortgage affordability” and the second that the level of UK homebuilding was “relatively small for the size of the economy compared to Spain or Ireland or the US”.

“You have both a demand factor through aggressive monetary ease and a supply factor in that the oversupply was much less,” he said. “That to me is a very straightforward explanation for why housing prices have been relatively resilient.”

Mr Posen has repeatedly urged his Bank of England colleagues not "overreact" to inflation remaining over target by increasing interest rates and in recent months has argued for policy to move in the opposite direction – to provide further stimulus'.

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