A top Bank of England official has warned that the UKs mortgage market is showing signs of increasing risk in a speech today.
Alex Brazier, executive director for financial stability strategy and risk at the Bank of England, said that the UKs mortgage market was showing signs of greater risk.
“A sharp slowing in credit demand from buy-to-let investors after a set of tax changes, and subdued credit demand from new buyers as incomes have been squeezed, has masked the effect of looser credit supply to owner occupiers.
“Mortgage rates have fallen materially relative to bank rate, especially at the riskier end of the lending spectrum And lenders are now prepared to take a bit more risk.,” he said.
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Brazier, speaking today at Imperial College, added: “There is no flashing warning light here telling us to pull over urgently. There is, perhaps, the light that reminds us the car is due for a service."
He said that increasing risk taking in the consumer credit and mortgage markets must not be allowed to impact on lenders in the event of a downturn.
“Developments in corporate credit, consumer credit and in the mortgage market could be signs of a more generalised pick-up in risk taking. And when risk taking increases, it must not be at the expense of the resilience of lenders to any future downturn in the economy,” he said.
He argued that the banking system is now stronger than it was pre-financial crisis and should be better placed to weather a bank failure.
“Looking back, we have largely corrected the fault lines that underlay the crisis. In particular, the banking system has been strengthened,” he said.
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“As long as major banks continue building debt that can be bailed in and making the necessary structural changes, there is every prospect that bank failure in the future can be less damaging to the economy than in the past,” he added.
Brazier also said that he thought the UKs major banks were well-placed to handle any fall out from Brexit.
“UK banks must be able to withstand any economic shocks arising from Brexit. In our judgement, that condition is met,” he said.
He also warned that barriers to providing financial services to the continent could have an impact on the wider economy.
“Barriers to delivering wholesale financial services across the Channel could disrupt the end users in the real economy. The UK is a net provider of such services to the EU, so end users there stand at most risk of disruption. But end users in the UK would also suffer some disruption,” he said.
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