RTTNews - Friday, the quarterly bulletin released by the Bank of England revealed that lower house prices pushed households into negative equity in the first quarter. The central bank found that between 7%-11% of U.K. owner-occupier mortgagors were in negative equity.
Negative equity occurs when the market value of a house is below the outstanding mortgage secured on it. The central bank added that negative equity can lead to a further contraction in the availability of credit to both households and firms, and can also reduce household mobility. In case of default, negative equity can raise the loss that lenders would incur.
In its latest bulletin, the BoE said injecting more money into the economy would stimulate spending, helping the central bank to bring inflation to the target in the medium term. The BoE noted that if banks use the additional reserves to raise lending, the impact could be stronger.
It is too soon to say how powerful the stimulus will ultimately be. There is considerable uncertainty about the strength and timing of the effects, the central bank said.
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