So the rumours that the coalition government were about to give the Bank of England powers to impose mortgage lending caps seem unfounded as there was no announcement made in the Mansion House speech last night.
During the speeches last night neither George Osborne or Mervyn King made any reference to new regulatory powers that would have given the Bank of England the authority to impose LTV limits on mortgage lenders. According to the rumours circulating yesterday, these powers, if they had come to pass, were designed to help prevent any future bank melt downs through irresponsible lending practices.
I wrote about some concerns that if given these powers, the BoE would have been able to influence the property market by tweaking LTV limits according to prevailing economic circumstances. This would have been a major move towards Central control rather than market driven economics, at least as far as the mortgage and housing markets are concerned.
It is interesting to speculate whether the rumours were true, but the Chancellor and Mervy King changed course at the last moment in the face of criticism from the financial press and maybe other quarters too. Or were they just rumours with no substance behind them at all?
There were interesting and important statements made last night though. Not least being the end of the FSA with its powers being subsumed by the BoE.
There were also some interesting pointers about the future of the base rate. Mervyn King’s reinforced the view that Bank Rate will remain low for much longer than most economists are forecasting. He said that under prevailing market interest rates, although the odds were for inflation to remain above target over the next year, “looking two to three years ahead, the odds were on inflation being below the target.”
As the MPC takes a longer term view when determining the base rate, it seems likely that they will hold the rate at these low levels for the foreseeable future.
“This suggests that tracker mortgages will continue to offer good value for quite a while longer and that there is scope for fixed rate mortgages to fall further as the market reassesses its interest rate expectations.”, advises Ray Boulger of independent mortgage adviser John Charcol.
Mr Boulger does warn that “the comment from the Governor that when the time comes to tighten monetary policy it is most likely that this process will start with an increase in Bank Rate rather than a sale of some of the gilts bought under the Quantitative Easing programme was also noteworthy, as was the indication that these asset sales would take place over an extended period.”
So it appears that there won’t be any central control of mortgage LTV’s, but that mortgage rates will continue to be low for the next few years, however if inflation does take off, or there is some sort of economic shock, then expect base rates, and therefore mortgages, to rise in response.