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The Devil is in the Detail
The ink is barely dry on the Bank of England’s Financial Stability Report and a couple of days later we have the minutes of the FPC meeting that informed its contents. The Report itself had a fair bit to say about Buy to Let but buried in the Minutes we have the following:-
“Some asset prices and property prices, in particular, appeared elevated relative to incomes or rents. Increases in property prices had, in previous cycles, been associated with a subsequent increase in credit growth. Commercial Real Estate prices had risen strongly in recent years and prime CRE appeared overvalued on some metrics. UK house price inflation had picked up recently. Valuations were vulnerable to an increase in market interest rates or premia demanded by investors for holding risky or long-term assets.”
In other words when interest rates rise then the value of some assets (including property) will fall which, for the Financial sector, poses a risk.
It will certainly be interesting to see what happens if the US Federal Reserve raises its bench-mark rate later this month, for history shows that when the US makes a move the UK is not that far to follow.