on aggregate mortgage debt, under the assumption that there is no shortage of mortgages. demand for mortgages is estimated based on factors including household wealth and incomes, the housing stock and the elements that contribute to the user cost of housing ( including interest rates, maintenance and depreciation costs, property taxes, and expected capital gains ). it is estimated for the period 1984 - 2007 when most borrowers were not credit - constrained. this forward demand equation is then projected forward based on realised values for incomes, house prices and the stock, assuming there are no constraints on credit availability or access to mortgages. but chart 6 also shows a gap opening up between expected mortgage demand and the mortgage lending we ’ ve actually seen since, shown in the purple line. this reflects factors including constraints on the availability of credit, and potentially an increase in uncertainty and risk aversion in the wake of the crisis. alongside the increase in spreads immediately post - crisis, a similar pattern appears in non - price credit terms, which usually move over time in line with price terms as is shown in chart 7. this includes the availability of higher loan to value mortgages, which can represent one of the largest credit constraints on first time buyers, particularly in high cost areas12. access to credit was also affected from 2014 by the introduction of the fpc ’ s housing measures, which constrained the flow of high loan - to - income ( lti ) mortgages and set the level of the stressed interest rate increased competition in the mortgage market may have played a role in this all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice affordability test applied to new borrowers13. these were set by the fpc to constrain the future growth of household indebtedness in aggregate and to limit the number of highly indebted households, given the evidence that high levels of household indebtedness had amplified the depth and duration of the post - gfc recession14. it is unclear what impact these regulatory constraints on credit may have played in house price formation. the limit on the flow of new, high lti mortgages was not reached during the period, although there is some anecdotal evidence that, while the limit did not bite, it did constrain lenders ’ behaviour due to their own risk appetite. however, these limits are likely to have had some impact in some areas, particularly london, where

andrew large : basel ii and systemic stability speech by sir andrew large, deputy governor of the bank of england, at the british bankers'association - basel ii / cad 3 conference, london, 13 march 2003. * * * introduction welcome to all present - particularly bill rutledge of the new york fed, whose president, bill mcdonough, is rightly credited with the paternity of basel ii. basel ii is a significant step forward. it brings life to the concept of capital requirements as a function of the actual risks which banks undertake. and it extends many of the principles long developed in the area of market risk, into that of credit risk. the very essence of the banking business. this was a courageous move. and it has required herculean labour, intellectual agility, and sheer hard work. it seeks to address the public policy objectives of regulation and supervision on the one hand, and the real - world best practice of how banks manage their businesses on the other. it has sought to provide incentives to private firms to encourage them to manage themselves in ways which reinforce their own strengths, and hence to contribute to financial stability as a whole. but equally it is designed to enable supervisors to develop resources to sharpen their own judgement, to encourage them to take account of individual circumstances, to avoid box ticking, and to add real value to the process. these are worthy ambitions. they rely on the interaction of the three pillars to achieve it. having worked on both sides of this argument, i am more than aware of the anxieties - and indeed disagreements - which have arisen during the long debate that has got us to where we are. but the direction seems clear even though storm clouds may appear from time to time. but what i would like to do today is to look beyond today's situation a little, and to share with you a few reflections both on the basel process itself, and, looking forward, on some related issues. importance of all three pillars in the new accord firstly a couple of observations on the accord itself. one is to remind ourselves that the accord has three pillars - not just one. pillar one has had most of the attention hitherto. the challenge of producing greater risk sensitivity has been considerable. technical experts from all areas of the business, model builders, and others, have been involved. this has generated a tendency to seek greater and greater granularity and has resulted, perhaps inevitably, in considerable complexity. striking a balance between risk