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Mark Carney's recent press conference proved a good opportunity for him to update the Bank of England's views on emerging risks, in particular on the housing market. The Bank’s Governor noted that mortgage approvals are still around three-quarters of what they were prior to the financial crisis, and only around 15% have a loan to value of 90% or more, compared to 60% of mortgages then. As a result, the Bank continues to use policy to boost housing transactions, and the wider UK economy, although it did announce a shift in emphasis. Next year, the Government’s Funding for Lending Scheme will only be available for business, not household loans.  Data from the last quarter shows a marked improvement in usage of the scheme, from £1.6 billion to £5.8 billion, both to the household sector and companies.  The policy was initially intended to mitigate banks’ constrained access to credit, which is now less pertinent.  As such, we believe the change is appropriate.

More interesting was the Governor’s proclamation that the Bank now has the tools to exert further influence on the housing market.  It will start with requiring mortgage lenders to use potential future interest rates when they assess a borrower’s affordability.  In future, it could use recommendations on a range of standards being used successfully in other countries.  In our view, this illustrates that central banks worldwide will be considerably more proactive in their regulation of housing and banks.  Indeed, Mr Carney noted his experience in Canada showed that by ‘acting earlier, you reduce the need to act to a greater extent later’.