The Bank of England (BofE) has announced that banks can release an extra £5.7bn from their regulatory capital to finance loans to private individuals and businesses. The effect of this is to increase the amount that banks are able to lend to £150bn.
The money is being made available by the BofE reducing the Countercyclical Capital Buffer rate from 0.5% to 0%, as reported on its own website on July 5, 2016. This reduces the level of assets that the banks need to retain. The extra money will be available to fund private and commercial mortgages, as well as business loans.
In a July 2016 speech at the headquarters of the Bank of England, its governor, Mark Carney, said:
“UK households and businesses who want to seize viable opportunities in a post-referendum world can be confident they will be supported by the financial system.”
“We really do want to make it as clear as possible to households and businesses, that credit should be available for the right ideas and the right transactions, be it a mortgage or new business.”
According to many experts, increased lending by banks could stimulate the bridging loan market. Ready access to bridging finance could keep property prices high, making residential and commercial property an attractive investment.
Carney has not announced a change in the Bank of England base interest rate, though it is expected to cut interest rates in the near future. If the interest rate is reduced, this will cut tracker mortgage rates, but may not necessarily lead to lower fixed rate mortgages.