The BoE has declared that the Funding For Lending scheme will no longer be usable by banks to fund mortgages and will only be available for business lending. This is the single most important change in lending policy for three decades. The Bank has also indicated that it will set minimum deposit levels at a higher level should the housing market continue to heat up. In other words we are returning to the form of economic management which recognised that a mixed modern economy with many built in tensions has to be subject to coherent credit management, and this cannot be achieved by interest rates alone.
As this Blog has repeatedly said, the entire economy will be put at risk if recovery is built on a housing and credit boom. Not only does such a path lead direct to a crash, but it profoundly weakens the economy overall, by starving small businesses of capital, so that demand is met by imports. Make no mistake, this is a game changer. Essentially it means that house prices will not in future be allowed to significantly diverge from inflation and that they will be handled independently of business. The effect will be to induce a separate rate structure for property, to that for commerce and industry. This is exactly what the author of this blog has consistently argued for, both here and in my book 2010 A Blueprint for Change, still available on Amazon and published in 2009.
What is now needed is a major building drive for social housing and large scale development of affordable rental properties owned by pension funds and investment institutions, as well as a coherent and timely infrastructure renewal programme. That will give an economic recovery which will set the whole of society on a road to a better future.
There is an interesting footnote. Vince Cable is delighted with the announcement today. George Osborne pretends to be a party to it and in favour. Few are fooled. It is clear that the time honoured Tory election strategy of building a boom to entice voters on the back of surging house prices has lost a wheel.