It is widely expected that the Monetary Policy Committee will cut interest rates at its meeting in August. Mark Carney has made it clear that the economy can handle change, stating the UK is “one of the most flexible economies in the world and benefits from a deep reservoir of human capital, world-class infrastructure and the rule of law.’

Easing capital requirements, used by the Bank of England to encourage banks to continue lending, is a critical factor in these uncertain times. During the Global Financial Crisis, back in 2008, liquidity was tightened and that flowed through to mortgage lending and had significant negative consequences for the housing market.

An effective ‘risk indicator’ throughout the Global Financial Crisis was the price differential between the rate at which banks were willing to lend to each other (LIBOR), and the prevailing Bank of England policy (or base) rate. When the gap widens, it signals that interest rates are likely to rise in the not too distant future. This risk indicator reacted very quickly to the very first signs of trouble in August 2007. It then took a year for the full force of the Global Financial Crisis to come to a head with Lehman’s collapse in September 2008.

It is encouraging that, in the weeks since the EU referendum, there has been no significant increase in this risk indicator. It is also reassuring to note that, the 5 year swap rate, which is a key market interest rate on which mortgage lenders price their fixed rates, fell on the expectation that the Bank of England would cut interest rates., A number of lenders have already moved to lower the interest rates on their products. Lenders may with time seek to tighten restrictions on mortgage lending but, for the moment, there is no evidence of this and there is mortgage debt available for homebuyers.

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