The Bank Of England should be wary about raising interest rates following a mismatch in mortgage and housing activity. This is according to a new report from the IMLA (Intermediary Mortgage Lenders Association) that suggests policymakers would be better concentrating on making Help To Buy schemes more targeted. Broader action, they believe, would be too hasty after the recent Mortgage Market Reviews that are already helping the market slow down.
The report was released just days before the financial policy committee of the Bank Of England is due to meet. It also comes after the UK chancellor George Osborne allowed the bank to have new powers to intervene in matters in the mortgage market.
There are currently some concerns about the market overheating in London. However, experts are pointing out that areas like the North East are recovering as a much slower pace. Therefore, drastic action should not be taken just based around what is happening in London.
The IMLA report explains that the strength of the market reflects the increased use of cash to make purchases. More than 35% of houses were bought totally in cash during the first part of 2014. Less than 25% did that seven years ago.
Peter Williams, executive director at IMLA, said: ‘With understandable concerns over the rate of house price increases in recent months, the FPC faces a difficult task, even more so with the prospect of additional powers at its disposal in the near future. What is important is to uncover exactly why these rises are happening by examining current trends in both housing and mortgage markets to make a full assessment.”
‘Delving beneath the house price data and the overarching UK averages paints a picture of a housing market where the use of cash has become a key driver. There are broader questions for government about the implications of this, though in part it has been driven by a shortage of mortgages: a situation that is being corrected.”