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Blog: Calmer waters ahead after BoE stimulus?

Society of Mortgage Professionals head of professional development Lee Travis

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 financial crisis.

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 again.

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 going forward.

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 first place.

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?