The financial policy committee of UK says that it has kept itself alert as well as other committees to the risks of financial stability that is posed by the slowing down of the Chinese economy. The committee has also given sound warning about the household debt in the country. The Bank of England is concerned with what is developing in China in which the buy-to-let mortgage market will pose a threat to the banking system of UK.
Policymakers and legislative bodies are now scrutinizing the recent boom of the buy-to-let sector for a trend that would be set by the lenders to make it easier for potential landlords to obtain huge loans easily. They are likewise concern that a certain rapid fall in the prices of houses will eventually force the landlords to sell their real estate properties which will exacerbate the decline. The Bank of England said that the downside risks to the stability of the banking system in the country have already notably increased since July and they also pointed out the market volatility which is triggered by the slipping of the Chinese stock market in August. The so-called Chinese Black Monday was highlighted wherein FTSE 100 index of blue chip and leading stocks lost at least 60 billion pounds. The bank is now commissioning a team to analyze the contagion as well as the impact of various computer trading strategies.
In a quarterly update that it released on potential risks that the current trend in the global market poses to the country’s financial market, the bank said that it will not be taking immediate action in cooling the pressure of the buy-to-let market where mortgages are riskier compared to interest loans.
If ever the banking system along with the financial system crashes, every industry in the economy will be affected especially those that are directly tied up with the housing sector. Companies like Bathrooms and More Store will be greatly affected. There will be rise of the unemployment rate and would crumble the solid foundation of the country’s banking and financial system. Worst case scenario will place the country in Greece’s shoes.