Bank of England may act on UK house price boom

Mark Carney suggested that the Bank could impose a new "affordability test" for borrowers as well as reining in the Government’s controversial Help to Buy scheme

Bank of England Governor Mark Carney
Bank of England Governor Mark Carney

The Bank of England could step in to curb mortgage lending amid fears Britain’s booming housing market could threaten the economic recovery, Governor Mark Carney has said.

Mr Carney suggested that the Bank could impose a new “affordability test” for borrowers as well as reining in the Government’s controversial Help to Buy scheme which provides taxpayer-backed guarantees for homebuyers.

“We could do more, we could take steps around affordability to test whether or not individuals can afford mortgages at much higher interest rates,” he told Sky News’s Murnaghan programme yesterday.

“We could limit amounts of certain types of mortgages that banks could undertake, we could provide advice - the Chancellor has asked us if we would provide advice on changing the terms of Help to Buy - all those things are possibilities and we will consider them all.”

Mr Carney said the housing market potentially represented the “biggest risk” to the economic recovery.

With approvals for large mortgages on the increase, he expressed concern about the dangers of another “big debt overhang” building up.

But while the Bank was monitoring the situation closely, he said there was little they could do about the “deep, deep structural problems” in the housing market, with demand for homes outstripping supply.

Mr Carney surprised some analysts last week when he played down the prospects of an early rise in interest rates - despite the fears of a housing market bubble.

In his interview, he said the Bank of England was watching to ensure the banks had enough capital to withstand the risks involved. They were also checking procedures to try to ensure that mortgages were issued just to people who could afford them.

Nevertheless, he said that there was evidence that large-value mortgages - with loans of more than four times a borrower’s salary - were on the rise again, with the risk that they could destabilise the economy.

“The biggest risk to financial stability, and therefore to the durability of the expansion - those risks centre in the housing market and that’s why we are focused on that,” he said.

“We don’t want to build up another big debt overhang that is going to hurt individuals and is very much going to slow the economy in the medium term.”

Ultimately, he said, the real problem lay in the shortage of homes - with the UK building half the number of new homes that were being built in his native Canada, despite a much bigger population.


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