tony's blog

Friday, November 23, 2012

You can’t have it both ways

I was a little surprised to see Chairman of the US Federal Reserve, Ben Bernanke’s comments this week about how the overly stringent lending requirements of banks are hurting the US housing recovery. He said that ‘the pendulum has swung too far from the easy lending days of the housing boom complaining that ‘overly tight lending standards may now be preventing creditworthy borrowers from buying homes, slowing the revival in housing and impeding recovery’.

I’m not sure how timely these comments were given that the US Commerce Department subsequently revealed housing starts had risen to their high level for more than four years.

More importantly I’m not sure how helpful it is to suggest its time for lenders to relax their lending criteria at this time. Wasn’t much of the blame for the start of the Credit Crisis aimed at the US for being irresponsible and lending to individuals who hadn’t a hope in hell of repaying their mortgage from day one?

I’m not saying Mr Bernanke is advocating lending to credit impaired individuals but is it the right message to encourage lenders to relax criteria, especially since there are encouraging signs from the US housing market?

Thursday, November 1, 2012

Sifting through the data - or a tale of mixed messages

There seems to be a fair amount of confusion out there at the moment with regard to how the UK economic recovery is going. We have Sir Mervyn King,governor of the Bank of England saying that the UK economy was recovering at a ‘slow uncertain pace’ and it was ‘not clear if positive indicators would persist’ whilst Charlie Bean, deputy governor of the Bank of England, seems much more optimistic suggesting that there were ‘reasons for optimism’ for the UK economy with real ‘signs of progress’.

Conversely mortgage lending seem to be picking up, with the Bank of England suggesting that mortgage approvals are gathering in pace, thanks in some part to the Funding for Lending Scheme, yet house prices remain subdued with the Nationwide Building Society predicting that the housing market will take some time to gain any sort of momentum.

It’s all very confusing and it seems daily we are getting a mixed bag of messages.

For what it’s worth I think that things will gradually start to improve in the UK economy next year and we will see more consistent data coming through. I also agree with John Cridland at the CBI who suggests that we need to get used to a ‘new normal’ of slower growth with annual expansion of 2% looking pretty good.

As for the housing market, I think that too will perk up albeit gradually. However I am concerned about the longevity (or lack of it) of the Funding for Lending Scheme. I think thus far, that it is has been a force for good encouraging banks and building societies to lend and probably assisted financial institutions to price more competitively. But what happens when the Scheme ends, currently pencilled in for 31 January 2014?

Food for thought….