Seven years after we first wrote how securitisation had pumped up house prices it seems that Quantitative Easing is having a similar effect.According to ratings agency Fitch “Several years of QE have stoked inflation in select financial asset classes, notably high yield and certain prime housing markets such as London. As Investors watch keenly for signs of a peak, sudden sell-offs risk dislocating these markets as well as causing contagion.” It appears the back book of Mortgage Backed Securities has also been bolstered by low rates resulting in low defaults. However, “In Fitch’s view, home prices in the UK are on average 16% above long-term sustainable levels, with greater London showing the highest difference at 26%. Raising interest rates may present a challenge for borrowers accustomed to low rates and could be the trigger for renewed house price declines and a return towards sustainable levels.”
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