Cheap mortgage finance halted by Bank of England

Cheap mortgage finance halted by Bank of England

Cheap mortgage finance halted by Bank of England

The Bank of England has unexpectedly announced that the Funding for Lending scheme will not apply to UK mortgages from the end of 2013. This scheme has been in place for some time now offering cheap finance to banking institutions as a means of encouraging lending to the mortgage arena as well as small businesses. There is no doubt that the scheme has been very successful although Mark Carney, the Governor of the Bank of England, has today decided to call a halt to cheap mortgage finance in the short term.

What does this mean for the UK mortgage market? What does this mean for the wider UK property sector?

Sentiment has taken a knock

It will come as no surprise to learn that the share price of listed house builders on the UK stock market fell today after the surprise announcement by Mark Carney. This comes only a short while after the Governor of the Bank of England suggested he had no issues with regards to UK property prices, highlighting the fact that the situation in London was not being replicated across the UK. So what has changed?

Quote from : “Mortgages for first-time buyers are proving more and more difficult as the worldwide financial sector continues to consolidate after what many describe as the worst economic downturn in living history.”

Mark Carney has now confirmed that the recovery in London property prices is now more broadly based across the UK. As a consequence there are “evolving risks” and there is a need to rein in cheap mortgage arrangements sooner rather than later. This will no doubt take some of the steam out of the UK property market which has gone from strength to strength over the last two years. It will also push up the price of mortgages, which could possibly make first-time buyers and existing homeowners think twice about taking out finance.

No immediate threat

While the bank of England was very keen to confirm there was no immediate threat of a house price bubble in the UK it did confirm there were potential problems ahead unless funding issues were addressed. The fact that this was a surprise should not overshadow the fact that this is Mark Carney making his first real statement to the UK investment arena and ultimately it has done no harm with regards to his growing reputation.

Time and time again in the past, both in the UK and overseas, governments and central banks have left it too late to address the issue of runaway property prices. The fact that the Bank of England has been proactive rather than reactive with regards to this potential issue is something which bodes very well for the future.


It is good to see that the Bank of England, under the stewardship of its new governor Mark Carney, is more than happy to change its view and its strategy when situations change. Only a few weeks ago the bank issued a statement suggesting there were no problems regarding UK property price rises as most of this was centred round London. The situation seems to have changed over the last few weeks and there is now a broader recovery in UK property prices which does have the potential to lead to a property price bubble unless addressed now.

We should certainly be applauding the proactive nature of today’s announcement and the fact the Bank of England is not afraid to change its mind.

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