Does the Bank really think this week’s measures will be effective?

26th June 2014 by Jonathan Davis

#Carneyge on house market

The news from the Bank of England this week

BANK OF ENGLAND FINANCIAL POLICY COMMITTEE TO CAP BULK OF HIGH LOAN-TO-INCOME MORTGAGES AND TOUGHENS UNDERWRITING STANDARDS

TO SET FROM OCTOBER LOAN TO INCOME RATIO AT 4.5 FOR 85 PCT OF NEW MORTGAGES

TOUGHENS AFFORDABILITY TESTS FOR NEW HOME LOANS FROM THURSDAY BY TAKING INTO ACCOUNT POTENTIALLY HIGHER INTEREST RATES

DOES NOT BELIEVE THAT HOUSEHOLD INDEBTEDNESS POSES AN IMMEDIATE THREAT TO STABILITY, MEASURES AIMED TO INSURE AGAINST THIS RISK

What a load of rubbish. So what’s missed out?

Help to Buy (or Borrow or Sell) to continue.

Buy to Let lending to continue

4.5x income means 4.5 times joint income or 9 x income!…if each income is similar.  A generation ago it was 1 income and 3-4 x at that!

This brings us to the reality of mortgage lending and of our so-called economy.

And #Carneyge had the gall to repeatedly say the Bank of England is taking early action.  And the media laps it up.  For goodness sake! :(

To my mind, the Bank of England are planned economy Marxists and not free market capitalists.  They believe that all you have to do is regulate, tweak and pull X or Y lever and they can ‘manage’ the economy.

Wrong an all counts.  That is almost the definition of Marxism.  Name me one country in history that has served its people well with that regime.

‘We don’t care about house prices’.  Who said it?  Mark Carney, Bank of England Governor on Thursday at 10.58am.

Of course they don’t.  They want them to rise as much as possible to keep lending up to keep bankers rolling in bonuses.  It also keeps the costs of living and of running businesses sky high.  Thus, none of it is sustainable.

All they care about is keeping lending up and keeping spending up.  To Hell with the fact that bankers’ lifestyles are only kept going by greedy ignoramuses borrowing beyond belief and putting themselves, eventually, into penury.  This is yet another nail in the coffin of the middle class.

Instead, oh I don’t know, how about #bringbackcapitalism and stop intervening in the market?  #banHTB and above all #banbankbailouts – let them fail.

The next time there is a global economic shock it will all hit the fan.  But how many folk will have massive debts, having believed all will be well because the Bank of England is doing something about it?

This will not stop prices from eventually plummeting.  It will not happen due to anything going on internally. It will be the next global economic shock.

I refer you to this post.

Nothing in these articles can be taken as financial advice.  Neither Jonathan Davis nor Jonathan Davis Wealth Management will be held responsible for action taken or not taken from reading these articles.

We recommend investors seek bespoke advice before acting.

© 2014 Copyright Jonathan Davis – All Rights Reserved

4 thoughts on “Does the Bank really think this week’s measures will be effective?”

  1. bob loblaw says:

    So is it 4.5x joint income or sole income ?

    1. Anonymous says:

      Assume joint. Pathetic huh?

  2. Noo 2 Economics says:

    I thought Marxism didn’t have anything against free markets? It simply suggested profits should be paid to the proletariat whether they were workers, unemployed or disabled. You seem to be describing a centrally planned economy which has more in common with communism than Marxism.

    Your “bring back capitalism” refrain reads more to me like “de-regulate and let the price mechanism take over”. Unfortunately, we have witnessed the effects of “light touch regulation” with the debacle that started in 2008/2009 with the likes of RBS, Nat West, Halifax/HBOS, Northern Rock etc.
    Don’t get me wrong, I would’ve happily followed capitalist rules and stood by whilst all that lot and the rest went to the wall, rather than this ridiculous socialising of their losses whilst privatisation of their profits (Virgin money) continues leaving Sovereigns paralysed and unable to deal with any further crises as they continue to struggle to deal with the failure of capitalism that occurred in 2008/2009.

    I think you are wrong in your central argument – that the BOE doesn’t care about the housing market price rises. As Shakespeare’s Queen Gertrude said “The lady doth protest too much methinks”.

    The BOE are very worried about house prices otherwise why would they be happy with the Mortgage Market Review and then choosing to add to it the “affordability stress tests” which are clearly aimed at tempering the price rises part of the housing market.

    As to why the BOE is worried, I believe it’s worried because of the developing risk on bank balance sheets which exploded so spectacularly just 6 years ago and it knows this time the Government is fresh out of ammunition so quite the contrary, the BOE is very worried about potential risks developing on bank balance sheets as a result of potentially unsustainable house price rises so it’s getting first bat in and trying to gently take the heat out of the market before everything boils over again., thereby removing one potential cause of the next global shock (assuming other central banks behave similarly). Is it doing enough? Certainly not! Income multiple should be 3.5 times earnings with no more than 80% loan to value and affordability calculated against a rate of 8% pa, but then that’s the regulation you dislike but it would create a stable, if sluggish market.

    By the way the source of the next global shock? My money is on fixed income, the global Central Banks have kept rates artificially too low for too long which has led to very frothy fixed income markets as the search for yield extends. It’s going to be very difficult to “normalise” rates without causing a massive negative event in fixed income markets which, of course, will then spill over into equities and thence to the real economies.

    I could write more but it’s my bed time.

    1. Anonymous says:

      We have seen no regulation because the market regulates. They should have let go bust but instead our kids were put in hock to save them. By letting them go bust we would not see the shenanigans by banks we see – house prices would be lower and, after a hiatus and readjustment, we would be the fastest growing country in the developed world.

      With capitalism we would not have seen the entirely reckless (fraudulent) lending we saw and see. Problem wouldn;t have happened in the first place.

      If Carney cared about house prices he would insist HTB be cancelled forthwith. Prices were flat for getting on for 3 years until HTB. The mkt was in a state of collapse. Prices were about to tumble. Then electioneering got going. Without easy lending prices will correct – in all senses.

      It may be The Fed loses control over rates. I’m not so sure. China is on a knife edge.

      Thank you for your extensive reply.

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