‘Bank of England may have to turn to unemployment to push inflation down’
The Bank of England has no choice now but to raise interest rates until it leads to higher unemployment in order to keep a lid on inflation, says Hans Geberbauer, CEO of Foundation Home Loans to IGTV's @AngelineOng.
UK inflation conundrum
The UK housing market faces multiple headwinds, not only is there high inflation, but interest rates are rising with no peak in sight just yet. Joining us to talk about the impact of this is Hans Geberbauer, CEO of Foundation Home Loans.
Explain the UK economic landscape as if this were a bike ride …
Well, ‘interest rates with no peak in sight’, that’s what makes it hard to compare… the best comparison is probably not so much with something in the mountains because if you go up say the Col de Bales in the Pyrenees, you know it is going to be 18 km, then there's going to be quite a bit of pain in some of the harder sections, and it gets easier in others, but you know there is a peak and on the other side, you're going to have a nice descent. With the UK economy, we don't know where and when the headwinds will end, that is really what it is. For a cyclist, it's like doing a tour, not knowing when the wind will stop, how long the course is, and after awhile, we seem to have signed up for a potentially endless ride and nobody quite knows when the next rest point is.
Markets keep getting it wrong
UK interest rates have risen steeply, but also the market has continuously mispriced rate hike and inflation expectations, and that’s the problem, we still don’t quite know when the hikes will stop, but we think it’s going to top out at around six percent, but the reality is we don’t know for sure and some of this will be driven by what the ECB and the Fed does.
Foundation Home Loans
Foundation Home Loans is a specialist lender. We provide mortgage lending to buy-to-let landlords and to owner occupiers who are not served by the high street, so we’re a wholesale funded lender. We also still manage a book of mortgage loans that was originated pre year of the great financial crisis so we have a great sense of how underwriting standards have changed over time and how this environment will impact mortgage books differently from how the great financial crisis impacted mortgage books written prior to 2007.
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