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Stick or Let’s Twist Again

03rd October 2011

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As politicians all over the world wonder how the hell they are going to get out of the mire that surrounds them, we are beginning to see options taken that are provoking a great deal of debate. The latest is the US’s Operation Twist.

First tried back in 1961 as an “experiment” whose results are still disputed, this involves the Fed selling short-term bonds and, here’s the twist, replacing them with longer term ones. The result is that as more long-term bonds are purchased interest rates should fall, (it’s a supply and demand thing, sort of).

So whilst the US relies on Chubby Checker to help lift them clear of another dip into recessionary squalor, the question is what affect will it have on us? The markets seem initially to be unconvinced, as whilst the yields of 10 year bonds will fall, recent studies suggest that last time the actual effect on mortgage rates and actual borrowing costs was negligible and, let’s face it, interest rates are already very low, so our problems run deeper.

The key to this policy is that no new money is put into the system, so it is crucially different to Quantitative Easing. If SWAP rates do fall accordingly as a reaction to this then great, but will this actually stimulate more lending to individuals and businesses?

Back at home the Bank of England’s MPC, now all firmly singing from the same hymn sheet, are contemplating a new round of QE themselves to help stimulate things, with November the favoured date for another £50 billion or so.

As far as the beleaguered UK housing market is concerned there are deeper issues still and we need some radical thinking and one or two experiments of our own.

Housing policy needs a radical overall, builders need to be supported, a North-South divide is getting more and more pronounced and the social issues that arise with a population unable to move are far reaching. Local Authorities are struggling to meet their social housing allocations and homelessness continues to grow, which is shameful in this day and age. Housing is in danger of being the preserve of the well off or the fortunate.

The strange thing about our industry, however, and one that is contradictory is that it feels better. Is that just because broker numbers have fallen so dramatically that there is more to go round? Most brokers I speak to say that things have picked up – is that just a London thing?

One pleasing aspect for us brokers is not just the fact that lenders are now tapping us on the shoulders and asking for more business but the return of the smaller building societies who, not able to just compete on price, are looking for new ways to lend again.

These lenders are able to eschew the frustrating tick box mentality of those banks who claim to offer the very best rates, (the reality being that clients are victims of the long, drawn out, “Yes, Yes, er No” approach), and instead offer the ability to discuss trickier cases with a real decision maker on day one.

If the property market is to kick forward once more, then this lending is essential in the new world where credit and risk rules the roost.

Whilst the threat to all of us is a second retreat by lenders triggered by, for example, a further disintegration in Europe or the mighty US twisting too far we all end up shouting, we need to make sure that as an industry we are heard louder than ever.

We need new ideas and some radical thinking to meet the challenges we face.

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Andrew Montlake

About Monty

Andrew Montlake, Director and Spokesperson for Coreco, gives his honest and forthright views on the mortgage market, economy and all things property related. Monty was voted "Mortgage Personality of the year 2008", "Best Press Spokesperson" in 2011 and is the current holder of the British Mortgage Awards “Best Marketeer” title. Expect expert analysis, delivered in a down to earth style with a side helping of exuberance.