End of the Crunch Show

Up until today it had not seemed to be a good week for news emanating from the Bank of England. Firstly, we had the news that in March the number of mortgages approved had dropped from 72,000 in February to just 64,000. Then yesterday brought governor Mervyn King's declaration before members of parliament that the recent £50 billion bond scheme announced last month was not an attempt to provide an immediate boost to the mortgage industry, even if this was hoped to be a longer-term consequence of the improvement in confidence in the banks that Mr King stated to be the principal aim of the move. This second element may seem to be at odds with the expectations of government, in respect of the recent meeting held in the wake of its announcement by chancellor Alistair Darling and housing minister Caroline Flint with the Council of Mortgage Lenders. The joint statement which followed the meeting said: "The group confirmed that this is an important step to tackle funding market difficulties, helping to bring further stability and confidence to the financial markets, and in due course should help banks and building societies to ensure that competitive mortgage products are available to potentialnborrowers." In the light of this, Mr King's comments this week may seemnsurprising. But that could be a matter of nuance. A quick boost to the mortgage market may be a bigger priority for a government trailing in the opinion polls and facing electoral tests at local level today and in a by-election later this month. But from a wider perspective, it may be considered that the re-establishment of confidence in the banking sector first is the foundation upon which a sustainable mortgage market recovery must be built, so that the priority outlined by Mr King will still have such benefits in the longer run. Today may have brought the good news that this is indeed how the Bank expects matters to progress. In its Financial Stability Report, deputy governor John Gieve acknowledged that the credit crunch was partly an "unavoidable" correction of a situation in which risk pricing was "unsustainably low" last year. However, he continued, the opposite was now true, with the aversion to risk being inappropriately high. As a result, he forecast, the situation should now change for the better, stating: "While there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months." He added that the recent bond scheme was all part of a plan to build the recovery in confidence. Such a view will be music of the ears of those hoping that the green shoots of recovery will emerge soon. Further encouragement may be found from the words yesterday of Simon Rubinsohn, senior economist at the Royal Institution of Chartered Surveyors. Analysing the latest house price figures from Nationwide which had revealed a drop in house prices over the late year, he said such findings were bad news for first-time buyers, yet noted: "The level of buyer enquiries is still more consistent with the 2004/ 2005 experience rather than the collapse in the market in the early 1990s." This, Mr Rubinsohn suggested, could mean any improvement in market confidence brought about by the Bank of England's recent liquidity scheme "could provoke a modest pick up in activity in the market in the second half of the year". So while the current picture may appear gloomy, the reality may be that the financial situation could be about to turn the corner. The credit crunch may have brought banks and borrowers alike back down to Earth and the future could still see far less easy credit than has been available in recent years. But if this is indeed the beginning of the end of the credit crunch, the prospect may be that of slow but steady growth emerging in the next few months. If so, this could be a promising time to invest in property.nn