The Bank of England has muttered for so long about the possible dangers lurking in buy-to-let lending, the most excitable end of the housing market, that it had to do something. Against that backdrop, Tuesday’s policy response can only be viewed as timid. Would-be landlords – or, at least, those who weren’t planning to perform advanced gymnastics with their personal finances – will not tremble. All that will happen is that some banks will have to apply slightly stricter lending standards.
In reality, those stricter standards are merely sensible ones that most lenders have adopted already. The Bank is only talking about testing a borrower’s ability to pay an interest rate of 5.5% when all tax liabilities are properly taken into account. That is hardly onerous when fixed-rate deals in the buy-to-let market are generally pitched around the 3.5% mark.
Even the Bank expects the boom in buy-to-let lending to slow barely at all. Lenders had been expecting to increase their buy-to-let lending by 20% over the next two years, the Bank discovered. After the effort to remove the riskiest slice of loans, the rate of increase may fall to about 17%. Big deal.
The potential perils of rampant buy-to-let lending are easy to identify. In a downturn landlords may be inclined to cut and run, creating headaches elsewhere. Or, in the Bank’s financial policy committee formal language, “buy-to-let investors could behave pro-cyclically, amplifying cycles in the housing market, as well as affecting the resilience of the banking system and its capacity to sustain lending to the wider real economy in a stress”.
That’s still a potential threat, note. But, with buy-to-let lending already close to 2007 levels as a share of the overall mortgage market, the Bank had room to be bolder, for example by placing caps on loan-to-value ratios. Instead, it has reached for one of the smallest tools in its new kit-bag. It may be a case of too little, too late.
Don’t turn on Tata
As Tata Steel’s board pondered the future of the Port Talbot steel plant into the early hours, it was a bit rich for UK government figures to opine to the FT that the Indian company risked “shredding” its reputation if it opted for closure. Read last December’s report by the business select committee into the UK government’s handling of the crisis and it is hard to conclude that the reputation of any of its own ministers has been enhanced.
The report complained that the government was slow to heed the industry’s warnings. When relief was offered on energy costs and business rates, it came slowly. It was a similar story on changes to procurement guidelines to improve the chances of UK firms winning major orders. “We regret that this change in policy was not made many months, if not years, earlier,” said the report.
Then there is the troubled issue of Chinese dumping of steel, the single biggest reason for the crisis. The startling fact is that the US seems able to reach a decision on illegal dumping in two months whereas the European commission takes between nine and 15 months. The UK clearly can’t be blamed directly for foot-dragging in Brussels but “successive governments should have done much more to press for accelerated action at an EU level,” concluded the select committee.
There are no easy answers to this crisis. Powerful global forces, and the Chinese government’s refusal to address over-capacity in its steel industry, are at work. Nor can the UK government underwrite the losses of a private company like Tata. But making cheap insults in the hope of bullying the company into backing a restructuring plan isn’t a strategy either.
Sticky sugar stance
AG Barr, maker of Irn-Bru and other fizzy drinks, can’t seem to make up its mind. On one hand, chief executive Roger White decried the chancellor’s plan for a levy on sugary soft drinks as “punitive”. On the other, he wanted to reassure shareholders that the supposed punishment won’t hurt. “We anticipate that brand loyalty and consumer preference will drive continued demand,” he said.
White would be better advised to stick to his other lobbying line about the tax being arbitrary. On that score, it’s easy to sympathise. If George Osborne’s aim is to reduce childhood obesity, chocolate seems an equally legitimate target.
But if Barr thinks the punters will be prepared to pay the extra tax, estimated at 8p per can, for the privilege of drinking full-sugar Irn-Bru, a cash-strapped chancellor may conclude that he could get away with a higher rate.