“After some recovery during 2009 and 2010, growth has fallen back to close to zero,” Miles said in a speech today in York, England. “The real disposable income of the majority of households has fallen significantly; uncertainty about future levels of incomes has increased sharply.”
Miles said that a decline in the volume of home transactions, which have fallen by half since the middle of 2007, and a drop in mortgage lending means the housing market is undergoing a “transformation.” He also said he expects a less leveraged property market as banks demand higher deposits for home purchases and that this may lead to a more stable economy.
“It seems clear that changes in house prices that originate from other sources than a variation of bank rate might have less impact on the real economy,” he said. “The economy would become more stable. That would make the task of setting monetary policy easier.”
Miles said that the ways in which home ownership are financed are changing as banks tighten lending conditions, and that many of those changes “will be permanent.” These may include plans such as shared ownership, or so-called equity loans, he said.
“Banks are, for understandable reasons, substantially more cautious in granting mortgage credit,” he said. “It will take time for first-time buyers to accumulate larger deposits, so they will typically buy later.”
The Bank of England expanded stimulus for the first time since 2009 last month. On the outlook for the economy, Miles said it is “likely that we will get back -- maybe slowly -- to more normal rates of economic growth and that households’ uncertainty about the future will fall back.”
“As that happens monetary policy will move back to a more normal setting,” he said. “But I do not believe that the housing market and the mortgage market will get back to where we were in the years leading up to the crisis.”
-- Editors: Fergal O’Brien, Eddie Buckle
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