BoE: ‘Brexit uncertainty will hit lending’

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The Bank of England’s Financial Policy Committee says uncertainty associated with the EU referendum could affect the cost and availability of credit.

In the minutes of its latest meeting, the FPC says the referendum on 23 June is the “most significant near-term domestic risk to financial stability”.

It adds that the uncertainty has been most marked in the derivatives market – namely, the sterling spot and options markets – which could have a knock-on effect for consumers.

The minutes say: “Looking ahead, heightened and prolonged uncertainty has the potential to increase the risk premia investors require on a wider range of UK assets, which could lead to a further depreciation of sterling and affect the cost and availability of financing for a broad range of UK borrowers.”

Other domestic risks raised by the Financial Policy Committee in its statement were credit conditions and buy-to-let mortgage lending.

The Prudential Regulation Authority yesterday set out proposals to introduce a set of minimum standards for buy-to-let underwriting, which looked at stress testing loans and affordability tests.

The FPC welcomed the PRA’s proposals: “The PRA’s review of lenders’ plans revealed that some lenders are applying standards that are somewhat weaker than those prevailing in the market as a whole.

“The PRA’s action is a prudent supervisory measure intended to bring all lenders up to prevailing market standards. It will guard against any slipping of underwriting standards during a period in which rapid growth plans could be challenged by the impact of forthcoming tax changes.”