UK mortgage lending grows whilst business lending sinks and Carney spins

The outlook for UK monetary policy is one of the main determinants of what happens in the UK housing sector and house prices. After all we are still in the boom created by the bank subsidy scheme called the Funding for (Mortgage) Lending Scheme which began in July 2012 and as of the half-way point of 2015 amounted to some £61.4 billion. You might think that such a sum would be a matter of large public debate but it skulks in a shadow which the mainstream media fails to shine a light on.Oh and as to the “Open Mouth Operations” about it being for small and medium sized businesses or SMEs they got an extra £0.5 billion in the second quarter of 2015 whereas the total rose by £4.2 billion leaving an unspecified £3.7 billion rise. I think we know where that went!

Also the international environment changed last week with Mario Draghi of the ECB promising more policy easing including a hint of an interest-rate cut and China following with a 0.25% reduction. Even more yields in Europe are now negative with even short-dated bonds in Italy and Spain dipping in and out of it. This means that the UK with its “lower-bound” (Mark Carney) of 0.5% Bank Rate looking attractive which has seen the UK Pound £ nudge 1.39 after being more like 1.36. This means that UK monetary policy has tightened a little when we consider how much trade we do with the Euro area. It also represents a change as the UK Pound £ had been drifting a little lower.

Governor Mark Carney

Over the weekend an interview with the Bank of England Governor was published in the Mail on Sunday. The Bank of England has not published it as perhaps someone was embarassed by these bits. Actually you need to look into the Mail on Sunday achives now as otherwise there have been some redactions.

“the 50-year-old charmer” “matinee idol Governor” “British financial royalty with a pedigree to match”

Rather breathtakingly as the Toad of Toad Hall approach continues we are expected to believe that the Governor said this “‘Am I in trouble?” when this was a PR exercise masquerading as journalism. However there was one policy sound bite which applies to the UK housing and mortgage markets as it concerns his often repeated promise of an interest-rate rise.

There’s no certainty that they will happen, but it is a better position to be in if households expect what we think is likely to happen, and to some extent are prepared for it.

I doubt whether households will agree if he ends up doing a U-Turn and they have taken out a fixed-rate mortgage with penalties for changing based on his promises! Indeed they may already be worried by this.

For Carney, the concern is with those he calls ‘vulnerable’ – the householders who could find it hard to pay their bills if rates rise. He says: ‘While there’s been a lot of progress paying down debt, there’s still a substantial proportion of British households carrying a lot of debt.

They may fear that the ground is being tilled such that a U-Turn would be to protect the vulnerable especially as household debt is rising again. Let me show you from today’s British Banking Association release how households have been paying down debt.

the overall mortgage stock is now 1.7% higher than a year ago…….Over the past two years, net borrowing through personal loans has been rising and has expanded notably over the past two years.

Accordingly one might mull this sentence from the interview.

If events mean that does not happen and rate rises are not appropriate, then we will do the right thing and we will not adjust rates.

This is rather different to say the least from what we got at Mansion House back in June 2014.

The economy is still over-levered. The housing market is showing the potential to overheat.

So we have borrowed more since and house prices have risen as well as rents soaring so this must have happened ages ago, right?

It (the first interest-rate rise) could happen sooner than markets currently expect.

This was taken as a promise by markets back then as for a Bank of England Governor this was considered to be plain-speaking. Now we seem to be getting echoes of the past from one of Harold Macmillans supposed phrases/excuses.

Events my dear boy events

Today’s mortgage lending data

If we look at the BBA release for the main high-street banks we see that there is considerable growth on a year ago.

Gross mortgage borrowing was £12.1 billion in September, 17% higher than in the same month last year.

In fact net mortgage lending has been picking up again and was some £2 billion higher in September. If we look forwards we see this.

Approvals overall were therefore lower than in August but some 24% higher than at the same time a year ago.

So a dip compared to the very strong August numbers but still above the 6 month average. Even if we allow for the remortgaging boom inspired by the promises of Mark Carney there has been an increase in house purchase approvals of 14% on a year ago.

Putting it another way the reduction in mortgage-rates driven by FLS has been a major factor in this being reported by City-AM today.

HOMES in England and Wales are at their most affordable in 13 years, new research from Hamptons International claims…….The estate agent’s latest Ability to Buy index increased by two per cent year-on-year in the second quarter to bring it to its highest level since the first quarter of 2002.

As real wages have fallen in the credit crunch era that kind of leaves mortgage rates does it not? Some care is no doubt required with the exact number but the principle behind it seems fairly sound.

Up down and flying around

Bloomberg Business thinks that London is about to pass Mars I think.

Lower mortgage costs and a shortage of homes are fueling speculation that values in the U.K. capital are set to spike again. Lenders are also loosening borrowing conditions, with loan-to-income ratios rising for the first time in a year in the third quarter, according to the Bank of England. That’s prompting brokers to increase price forecasts for London homes,

Whereas Sober Look is well more sober.

Quote (UK property research firm): Chinese authorities curbing capital flows, impacting London property market –

I will have to go out and look at some point as Battersea Power Station and the Nine Elms development we have discussed on here before get mentioned.


There is much to consider here as we note that for all the cries of Bank of England independence it has been aligned with the UK establishment in boosting the housing market. The UK government has had its own policies and Deputy Prime Minister Nick Clegg asked for FLS to be put “on steroids” back in March 2013. Does £61.4 billion qualify? However the boom leaves us with situations like this as reported by the BBC.

The towns of Virginia Water and Cobham, in Surrey, have become Britain’s first million pound towns – where average house prices are more than £1m…..Beaconsfield in Buckinghamshire is also in the millionaire’s club, according to research by Lloyds Bank.

Now some of that is of course the London effect where overseas money poured into the property market and helped drive prices higher. Now we see that London prices are seeing a more troubled outlook and new developments may well be falling in prices. Now if that continues and spreads out to the rest of the country what happens next? What if a Bank of England Bank Rate rise contributed to that? It would be rather bizarre to go to so much trouble to pump house prices up and then to be the one who bursts the bubble. No wonder Bank of England Governor Mark Carney is engaging reverse gear.

Oh and what happened to putting business lending “on steroids”?

Companies’ net borrowing decreased by £1.0 billion in September mainly reflecting the unwinding of some short-term lending.

Over the past six months the average increase in borrowing by non-banks has been zero.


18 thoughts on “UK mortgage lending grows whilst business lending sinks and Carney spins

  1. Hi Shaun

    I think house prices are complementary to debt: people use debt to plug holes in their “aspirational” standard of living and house prices are the emblem of that.

    As you imply it is nonsense, an illusion, a con trick. However, the government has a powerful incentive to maintain house prices because, if they collapsed, or even went down say 15%, many people would not only be in trouble financially but a lot more would be very angry and this would be reflected in the Brexit poll and also the GE in four years time; it would cause considerable political difficulty.

    I think what is happening is that Osborne and Carney are trying to massage the market down whilst hoping that a combination of real wages and inflation will reduce the debt burden whilst still maintaining the illusion of wealth. Think the recent changes to BTL as a way of dissuading investment in this sector to compete with FTBs.

    Frankly I doubt that this will work; with every day that passes, as you imply, the debt burden ratchets up and we get that much closer to slowdown/ recession and financial bust which will blow all the fine calculations and empty musings of people like Carney out of the water. I cannot see a way out of this and a government put option on the housing market will not save the political or the economic day.

    • Great post Bob.

      The proximity of the Square Mile and Westminster is more than geographical.

      I suspect there are a number of big banks that would struggle to handle a downturn of 15% in prices given they’re levered at 20 plus depending which measure you use-especially if we mark to market and not to model.

      I find it absolutely stunning that the people who steered the good ship Titanic into the iceberg are still at the helm.

      I think you’re right that they’re hoping for a soft landing in house prices/bank solvency with inflation doing the trick.This truly is the victory of hope over experience.

      At some point UK house prices are going to tank and probably for the very reasons that people think they won’t.

      Look at 2007/8.It took a minute drop in absolute turns and we needed 7 years of emergency cheap money for the banks to maintain the illusion of solvency.

      • oh deary me Dutch

        we still have emergency interest rates !

        And the economic tide is turning again …….

        no changes to how the Banks are run and HMG determined to keep pushing that housing boom button

        Why fer God’s sake?

        have they no other options or are they just stupid ?
        ( or both )


        PS: Camel’s son passing the third floor after jumping off the building , “we’re alright so far ………”

        • ‘no changes to how the Banks are run and HMG determined to keep pushing that housing boom button ‘

          Quite Forbin.It seems a default option in terms of election strategy.The only problem is that each time they use it,they’re creating a longer term problem in that they’re alienating newer voters who are increasingly frustrated/hurt by it.

          I’m unsure whether it’s the result of moral ambiguity or stupidity.Either way,we need a change in tack pretty damn quick if we’re to avert a serious crisis.Just my view.

          Better get back to work.

    • Great comment on a great article.
      Can anyone really blame financial institutions for concentrating their lending on the housing market, when they know that the value of houses is sacrosanct to politicians, and thereby their the value of their loans guaranteed?

  2. A couple of things here.
    1) It’s great that there’s some respected names calling FLS what it actually was.The MSM has shown how much it needs Estate Agent advertising over the past 7 years with it’s compliance with the Westminster/CB/banking reach around.
    2) Would someone kindly spare a thought for the next generation.
    £50,000 degree-300,000 UK domiciled graduates and about 60,000 graduate jobs
    House prices at 7/8+ times local average salaries depending upon location
    National Debt-including PFI,pensions etc probably north of £3 trillion
    No prospect of a decent work placed pension and yet they’re being lumbered with the promises of previous generations of politicians.

    Taking point 2,there’s only one way for the UK housing market to eventually go and it seems ironic in the extreme that George Osborne is preparing to sacrifice the retirement dreams of so many Buy To Let landlords to embrace the home owning aspirations of his future voters.

    As for Carney,he’s doing his PR puff pieces in the hope that he’ll see out his tenure before we go up poop creek sans paddle.

    Personally,I don’t think he’s going to be that lucky.At some point he’ll have his SNB moment when he has to raise rates to protect sterling.

    • Hi Dutch

      You make an interesting point about how much the media relies on advertising from the finance sector. From Wonga through the banks to various others it must be a decent sum and of course so many sections of the media are struggling.

      As to Mark Carney I think that he saw the Bank of England as a stepping stone up from the Bank of Canada for himself. But he was never that committed which is why he negotiated his term down to five years.

      • Agreed on the media and financial sector. Totally captured. Also don’t forget Faisal Islam once said everyone in the media were up to their necks in BTL.

    • They will let sterling drop a good way before they raise rates because they know that this would precipitate the next leg down.

    • “House prices at 7/8+ times local average salaries depending upon location”

      If you are lucky. A 3 bed terrace is 45x average wage where I live in Holloway.

      • Hi fatboyjim2 and welcome to my corner of the web

        Many parts of London have have become unaffordable in terms of wages and in most cases even the bank of mum and dad too. It is pretty much for foreign money at such prices.

  3. Great column as usual, Shaun, and thank you very much for pointing out that interview with Governor Carney in the Daily Mail.
    Mr. Watkins may be British, but he writes very much like the Carney worshippers I remember from the Canadian media when he was running the Bank of Canada. He certainly didn’t do his job in questioning Governor Carney about his Brexit speech. We are just three years away from Eurostat making a determination on adding an owner-occupied housing component based on the net acquisitions approach to the HICPs, one of which is the UK CPI targeted by the Bank of England. Surely any journalist worth his salt would have asked Governor Carney how he thought this might evolve with and without Brexit. The Governor of the Bank of England must work with the remit he is given, but he should have his own views about what the remit should be, and whether it should automatically change through the back door. Not only was this issue ignored in his speech, it was also ignored in the much longer report “EU Membership and the Bank of England”.

    • Hi Andrew and thank you.

      When I published some thoughts on Twitter yesterday morning about the Mail on Sunday interview one reply suggested perhaps the Bank of England had written the lot! I must confess I was wondering if the Daily Mail organisation was trying to get up the Bank of England pecking order and made a mental note to see what happens at the next press conference.

      The UK media has so far regarded Mark Carney with the same awe as you have told us about their Canadian counterparts. Rather like a peasant doffing their cap to a medieval landlord. It does make me wonder about Dutch’s point about advertising although of course the Bank of England does not do commercial advertising.

      As to your points about important questions missed there are others too but apparently there was plenty of time for PR spinning.

  4. “…. towns of Virginia Water and Cobham, in Surrey….”

    yup always lived around those areas , amazing properties and I suspect now that they are all purchased with cash by the top 0.1% ters …….

    as for the rest of us servants – we’re allowed to borrow more and if we dont like it we can always be replaced by Syrians / kenyans/ ….

    Frankly you can see why Wentworth wants 125,000 membership fees – thats actually cheap…

    “Bank of England Governor Mark Carney is engaging reverse gear.”

    No, he’s revving in neutral ……( this dammed economy wont go into gear ! )

    another kan kicked and I’m left wondering when we’re gonna run out of road …..


  5. Hi Forbin

    So you have us rolling down the road “with a boxful of neutral” as formula one commentators would put it? Perhaps the Chinese owner of Wentworth golf club took a look at house prices in the locality and decided they can afford it! Although it would be interesting to know how many members live in the local area these days. Is it like central London?

    Meanwhile the price of oil has been slip sliding away again recently with Brent Crude now at US $47.43 per barrel.

  6. Stepping back from the ludicrous manipulation of money (in the style of Ancient Rome, Hungary, Zimbabwe et al) I’ve been equating the Ponzi type modelling of Osbourne and Carney to try and understand the trade / game. After all, neither is too dim so there must be a flip to the housing policy planned out and ready to roll. Neither can surely believe that we are “At a permanent plateau of prosperity” so, lets assume they know its a bubble (remember Carney rents property for the duration of his stay, he would have bought had he not understood fully that “Tree’s do not grow to the sky”)

    If one looks at oneself as a stockbroker who does not care which way the market moves as he makes on both side of the trade (stamp duty) , further if you own the banks and building societies lending into the market there is your spread , to top it off , as and when the market goes pop your best buddies own the biggest hedge funds ready to “help out” distressed mortgage holders by allowing them to stay in the properties as tenants paying higher rents than they were mortgages (Remember the Royal Mail valuation scandal !!) , it all makes perfect sense.

    So, if you are in the market , probably need to think about getting out (we need to look at homes as very highly leveraged investments , forget the “a place to live” argument it went out in the 1960’s )
    Japan 1989 is a great example of what happens to property prices when Debt / Deflation gets a hold, might be worth a look.

    Anyways great to read this Blog , given up reading House Price Crash as it seems to have been mugged by some idiot called Libertas (I think thats Osbournes pseudonym 🙂

    • Hi Pimpernell, thank you and welcome

      The trouble is that so far the UK establishment has been willing to coin a phrase “whatever it takes” to keep house prices on a generally upwards trend. A King and now Carney put option.

      So either something will happen abroad to change things or policy will have to change here. I thought that 2007/08 would do it but look what was deployed in response although as you point out with reference to Japan the bigger they are the harder they fall.

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