Barratt Developments, Persimmon, Taylor Wimpey and builders merchant Travis Perkins all took a tumble this morning, despite the Banks attempts to allay fears that the housing market is not at immediate risk of fresh crisis.
The U-turn means banks will no longer receive subsidised funding to encourage mortgage lending and personal loans next year. The FLS will be focused solely on instead lending to small firms.
Marc Ostwald, strategist at Monument Securities, said the decision shows the shape of things to come on central bank policy, along the lines of the initiatives that Mark Carney introduced at his time as governor of the Bank of Canada.
“It goes to prove that the FLS has been far more effective than the feckless ‘spaghetti principle’ of QE,” Ostwald said.
He added that this was “not an admission of a bubble, but more a sharp admonition to banks about lax standards on mortgage lending. This is actually the line of attack on financial sector reform I have been expecting from Carney ever since he was appointed.”
Jason Hollands, managing director, business development & communications, at Bestinvest, was more surprised.
“We’ve long been sceptical about the wisdom of putting much emphasis on inflating the residential property market and in doing so widening the gap between average prices and average wages,” he said.
“Not only has this been sowing the seeds of potential problems once the rate cycle turns, we have been concerned that such an approach might starve other parts of the economy of credit flows.
“For banks with little appetite to take on greater balance sheet risk, mortgage loans carrying partial government guarantees have been a great way to fulfil loan growth targets while minimising risk. This has the effect of boosting already high house prices, but does little to promote longer term and more sustainable economic activity.”
