Not a subject offering huge comedy value, so I hope you’ll excuse the slightly formal Cole-face this week...
Not a subject offering huge comedy value, so I hope you’ll excuse the slightly formal Cole-face this week and find it as interesting as usual!
The above question is at the root of whether / when the housing market recovers. Our first instinct is to demand the lenders drop their rates in accordance with the Bank of England, so we can all borrow more for less and everyone's happy. The fact the banks are failing to do this, or at least to do so hastily, is the cause of much frustration across the land. In principal I agree, but when you dig a little deeper, it isn't quite as straightforward as you may imagine.
It really isn't just pure greed on the lenders part. Lenders currently have an especially difficult dilemma to manage. On the one hand, the banks are being forced to increase their asset base / money in the bank (excuse the pun). This is to protect them against future problems so they won’t have to rely on the Government again.
The best way to increase their asset base is to make more profit. The easiest way for them to make more profit? Not pass on the rate cut! They’re also being told to be more prudent with their lending. Remember that at the moment, there is a physical lack of money in the system. With less to lend, they are ordered to be more responsible with it. At the same time we the public and the economy in general, want them to lend more and pass on the lower rates so we can buy houses and spend more money.
It doesn’t have an obvious solution and I hope you can see how far from straightforward it really is. To answer the question then… No I don’t think the rate cut makes a real difference. Only when there’s enough money in the system to 'free it up' will more money be lent at better rates which in turn will allow more people be able to step back into the market. One of the options being looked at is actually printing more money. Seems too simple to be true but could apparently work!
In the meantime, the confident start to the year at Imagine has genuinely continued. We have agreed more sales in 10 days than we had in the previous 6 weeks and activity levels are far and above those of the last six months. Long may it continue! Maybe we don’t need rate cuts anyway