Lenders urged to increase loans as government kick-starts QE2
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The Bank of England’s decision to inject a further £75bn into its quantitative easing programme could bolster the mortgage market, industry commentators believe.
Last week the Monetary Policy Committee boosted its QE programme to £275bn and kept interest rates on hold at 0.5%.
The MPC says that while it expects inflation to rise above 5% in the next month or so, it is likely to fall sharply next year and it felt it necessary to increase QE to keep inflation at its 2% target.
Paul Hunt, managing director of Phoebus Software, says mortgage lenders must now shift their focus from offering low mortgage rates to increasing their appetite to lend.
He says: “The QE decision will protect growth and give lenders greater confidence that mortgage borrowers will be able to sustain debts in the long term.”
Ray Boulger, senior technical manager at John Charcol, says the move may allow lenders to offer more competitive long-term fixed rates.
He says: “If the Bank concentrates its buying power at the longer end of the gilt market it will result in a contraction of the yield spread when compared with short and medium-dated issues.
“This should allow lenders to offer longer term, say, at least 10year, fixed rates at a keener margin over five-year rates than we have seen to date.”
However, David Whittaker, managing director of Mortgages For Business, believes the MPC has bowed to pressure from the financial markets and politicians to boost QE, and has committed the UK to above-target inflation for some time to come.
He says: “The prospect of the cost of living becoming more expensive will be little comfort for those trying to put money aside and save for the weighty deposits needed to secure their first mortgage.”
He expects this to add fuel to the growing private rental sector.
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