Bank of England Warns on Mortgage Tightening

The Bank of England has issued a warning regarding the tightening of mortgage lending by banks and building societies. Banks, it seems, are getter tougher on mortgage lending because they fear the consequences of higher unemployment. The Bank fears that this tightening of leanding will inevitably lead to a fall in house prices, with all the attendant problems this creates in the current recessionary environment.

Banks are apparently asking for higher deposits at the same time as lending at lower earnings multiples. They have also targeted people who borrow on an interest only basis. These people, more often than not, do not have an effective repayment vehicle in place. Therefore the balance outstanding remains constant.

House price data from The Nationwide Index, produced by Britain's largest building society indicates that house price rises are indeed slowing down. In the year to September the increase has fallen to 3.1%, giving an average UK house price of £166,757.

Bank of England Cuts Interest Rates to 0.5%

The Bank of England today cut its minimum lending rate to 0.5%. Another record low, since its foundation in the 17th Century. Given that in that time we've had two Jacobite rebellions, fought two World Wars, seen off Napoleon and built and lost a global empire, the record low interest rate gives a measure of the current crisis. So much for Gordon Brown's claimed ending of the business cycle.

At the same time, the Bank will also pour £75 billion worth of extra currency into the nation's monetary supply. This represents 5.4% of GDP. Poor old Milton Friedman and Sir Alan Walters must be turning in their graves.

The implication for the financial services markets has yet to be assessed. You can still get 3 or 4% on your savings. And very few people are benefiting from super low mortgage rates. Interestingly at this precise time the FTSE is showing a fall of 3.0% against last night's close.