OpinionJun 28 2022

BoE is being a reckless parent

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BoE is being a reckless parent
Loosening mortgage criteria will hurt, not help, borrowers. (Andrea Piacquadio/Pexels)
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I might have even leaned across the polished mahogany table and grabbed the inquisitor by their lapels, to press home the point. 

At a time of rising consumer indebtedness, removing any affordability criteria is not a move to be applauded. 

It is like standing right on the edge of Beachy Head to allow people to take better selfies.

Affordability criteria were not just there to protect the lenders from having to repossess homes from those who persistently fail to keep up with mortgage repayments.

They were also in place to prevent greedy brokers – sorry, greedy customers – from getting a loan on a property, the value of which was so far beyond their gross annual income that any expectation of keeping up with repayments was a pipe dream at best, a lie at worst.

The BoE is not being kind to prospective borrowers by removing affordability criteria at a time when incomes are being stretched.

Even though the latest UK House Price Index from the Office for National Statistics has suggested a slowdown in house price growth is on the cards, with just a 1.1 per cent rise to the end of April, this still means the average house price of £281,000 in April 2022 is £31,000 higher than this time last year.

Tell me, how many clients can boast a £7,000 pay increase year on year that will in any way, shape or form help them to achieve the multiples now needed on a home loan?

Sure, there will be many clients with cushty bonus payouts or inheritances that will help them achieve that much-needed deposit for the property of their dreams. 

But the vast majority of Britons are being shellacked by a combination of 9.1 per cent CPI growth, low wage increases, rising energy and fuel bills and the erosion of their 2020 Covid savings. 

As the cash stashed during the pandemic starts getting put to use on those much-needed, long-awaited holidays or put to work to help shore up the monthly household expenditure, how long can the mortgage party continue?

Interest rates are rising, albeit nowhere near as rampantly as they did in the late 1980s. But the effect of rising bank base rates is the cult following of mortgage lenders raising their rates bit by bit. This always, always results in higher-than-hoped for mortgage repayments for people and tightens household purse strings even further. 

The BoE is not being kind to prospective borrowers by removing affordability criteria at a time when incomes are being stretched.

To extend the Beachy Head metaphor, it is acting like an over-indulgent, perfectly attired parent allowing their kid to take their latest iPhone right to the edge of the cliff because Little Payzleigh-Anne deserves to get her perfect TikTok video.

By contrast, there would be one frazzled, torn-jeaned momma body-tackling her boy before he'd left the parking lot with his cheapo Android, yelling: "It's too dangerous."

(That would be me, by the way).

I'm not alone. Joining me in the rugby scrum to protect our heedless offspring would be Nigel Green, chief executive of the deVere Group, who called the BoE's move "utter madness" and said the central bank was "failing Britain".

In fact, the BoE itself said the yearly growth rate of consumer borrowing rose from 5.2 per cent in March to 5.7 per cent in April, equating to an additional £1.4bn, with credit card borrowing rising 11.6 per cent – that's the highest level since 2005, pre the credit crisis, in case anyone has forgotten that happened.

So no, BoE. I don't welcome this move as a sop to help the dear, darling, indebted consumer get onto the housing ladder or help them achieve the home of their dreams. 

It's a blank cheque towards buying hundreds, if not thousands, of Britons a financial nightmare from which they may never wake up.

Simoney Kyriakou is senior editor of FTAdviser