Bank of England ready to act over housing market threat

The Bank of England insisted today that it is “vigilant” and ready to act over the threat of an overheating housing market

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The Bank of England insisted today that it is “vigilant” and ready to act over the threat of an overheating housing market.

Policymakers said they would closely monitor the market as it “appeared to have gained momentum and be broadening” - and be on the look-out for a bubble that could threaten financial stability.

The statement from the Bank’s financial policy committee (FPC) underlined previous comments from governor Mark Carney that it could intervene to dampen an unsustainable house price boom. Powers included imposing requirements on how much cash lenders hold and recommending tighter mortgage affordability tests to regulators.

The statement from the committee - which monitors risks to financial stability - follows a meeting last week, the first under the stewardship of Mr Carney since he took the helm at Threadneedle Street in July.

It noted that a recovery in the banking sector had led to easing credit conditions and an improving housing market, with mortgage approvals in July up 30% year on year and average house prices 5% higher - with London leading the increases.

But it said activity in the market and the ratio of loans to the value of properties remain below historic averages. The costs to households of servicing debts were also low and the ratio of house prices to earnings was at the level of a decade ago.

“The committee judged that it should closely monitor developments in the housing market and banks’ underwriting standards,” the statement said. “The committee would be vigilant to potential emerging vulnerabilities.”

It said a “range of tools” was available if any “risks to the stability of the financial system were to emerge from the housing market”.

The meeting was the first since the committee was tasked with a key role in deciding whether the Bank’s “forward guidance” commitment to low interest rates could remain in place.

Setting out the guidance last month, the Bank said one caveat or “knockout” could be activated if the FPC were to indicate a “significant threat to financial stability” that could not otherwise be addressed. But the latest meeting did not result in any new recommendations.

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