Wary of what they described as 'challenging' risks in the wake
of Brexit, the Bank of England's decision to ease special capital
requirements and release a potential £150bn into the lending
market, of course does not necessarily mean that consumers will
borrow all this money.
To put things into perspective, net lending in the UK last year
was £60bn with a strong and growing market according to BoE
governor, Mark Carney, who cautioned that households should act
prudently in the wake of the referendum
According to Mr Carney, this capital has been built up since the
credit crunch, to prevent a repeat of events in 2007/2008. He
therefore appears to be partially cashing-in this 'insurance
policy' to reassure the markets.
Of course during the financial crisis, this facility was not
available to encash. Since the referendum vote however, the
financial system is well equipped to cope with a volatile market,
due to lessons learnt from the past.
Furthermore, regulatory measures put in place since the banking
crisis mean that even if more money was to be borrowed, it would be
done in a responsible manner, thereby ensuring people have the
ability to manage any debt.
Carney says that during stress tests of the system's financial
resilience last year, banks and building societies passed a
simulation which included losses of twice that incurred during the
Nevertheless, we should not let this message of confidence in
our financial system allow us to become complacent. The building up
of cash reserves through these special capital requirements in
recent years is for consumer protection and financial strength. But
by releasing it we could be put in a vulnerable position once
Another key point in the Bank of England's announcement was the
fact that buy-to-let properties are an area of concern. That means
potential landlords could be put off investing in property.
It is assumed that any business-minded landlord would have even
more considerations to make about investing in the UK market today.
Landlords are already undergoing a period of other considerations
such as increased stamp duty land tax and lower profits (due to
changes in the amount of tax to be paid). Now they will also need
to consider the long term implications of Britain outside the
European Union - and what sort of relationship the two will have
During this period of uncertainty, potential investors will not
be able to gauge what sort of capital growth may be possible.
If this prevents stability and expansion in the property sector,
there is cause for concern for the wider sector as a whole.
That being said, whilst all forms of investments come with
risks, property has historically been seen as a consistent choice
for growth and income. Furthermore, in an environment of low
interest rates, there are not many other attractive options for
landlords in which to invest their money, and whilst the Bank of
England is rightfully watching this sector, it does not seem to be
under immediate threat.
Regardless of house price movements, rental yields remain
favourable and the lingering uncertainty with regard to house
prices is unlikely to impact on these. Even if some potential
buyers may put off purchasing for now, they still need a roof over
their heads, even if it means continuing to rent.
So to conclude positively, any potential slowdown in the
buy-to-let market will mean more room for negotiation for aspiring
home owners, after they get past any hurdles such as the strict
lending criteria and, of course, the question of a deposit in the
Lenders are playing their part in encouraging this growing
feeling of confidence, announcing it is business as usual and many
proving it by bringing new products to market since the vote.
Step by cautious step, could it be that consumers are gradually
getting the housing market they need?