Mortgage demand will rise when inflation drops in 2012 - Bean

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Deputy governor for Monetary Policy at the Bank of England Charlie Bean has said lower inflation next year should both support the mortgage market and consumer spending.

As household incomes become less squeezed, that will help those saving for a deposit or hoping to move further up the housing ladder, he said.

The transition from a mortgage market with generous loan-to-value and loan-to-income ratios, to a more sustainable, less risky "equilibrium" continues, he said.

On the projected decrease in inflation, Bean said: "As well as supporting consumer spending, it should also help support mortgage demand. That would, no doubt, be a most welcome development to you, as well as to the households themselves.

Bean also floated the idea of a cash voucher hand out to boost consumer spending in the UK, but said evidence showed people were more likely to save than spend it, acknowledged recent public debate on whether the effectiveness of QE could be enhanced by buying something other than government debt.

In a speech delivered at the Council of Mortgage Lenders' Mortgage Industry Conference & Exhibition in London, Bean outlined the BoE's drivers behind re-starting its Quantitative Easing (QE) programme.

The MPC expects inflation to fall back sharply next year, he said, easing the squeeze on household incomes and supporting consumer spending and mortgage demand.

The 5.2% reached by CPI inflation in September will drop, he said, but the economy is likely to remain weak. Without further monetary stimulus, "inflation would have been more likely to undershoot rather than overshoot the 2% target in the medium term".

Bean noted the slow UK growth in H2 2011 and emphasised that it is a global phenomenon. He attributed the slowdown to the twin forces of the euro area banking and sovereign debt crises; and the rise in energy and other commodity prices during late 2010 and the first half of 2011.

For the full speech, click here

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