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    Recent data foresees a rise in house prices which may lead to financial instability.

    According to the Bank of England’s (BoE), Financial Stability Report released just after the UK voted to leave the EU in June: 

    “The high level of UK household indebtedness, the vulnerability to higher unemployment and borrowing costs of the capacity of some households to service debts, and the potential for buy-to-let investors to behave procyclically, amplify movements in the housing market.”

    International Business Times also find that:

    • Recent data suggests that house prices are on the rise again and still pose a threat to financial stability
    • The BoE does not plan to use interest rates to temper the housing market like it was in 2008/2009
    • It seems like the central bank thinks that the benefits of the standard policy response are currently outweighed by the negative impact on other macro variables, such as inflation, economic growth, and unemployment
    • Perhaps, the financial markets will do some of the tempering for the BoE
    • Pounds sterling is 15% weaker since the vote and around 2.5% weaker since the Prime Minister’s announcement of the start of Britain’s talks to leave the EU.

    The result of these above is rising inflation expectations. Also, if the real rate on mortgage becomes too low, mortgage providers may be forced to defend their real profits by hiking their offerings again without any actions from the BoE.

    This may provoke a BoE reaction if the housing market were to slow too quickly and introduce financial instability.

    What do you think?

    Please tweet comments @suppsolutions

    October 24, 2016 by Abimbola Duro-David Categories: Housing And Benefits

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