Chancellor: BoE should not hesitate to cool house prices
06-07-2014
George Osborne urges BoE to be alert to the build-up of debt in the housing market as IMF prepares to warn about the risk of rising property prices to the recovery
BoE should not hesitate to cool housing market, says Chancellor
George Osborne said hehad established a mechanism, through the Bank's Financial Policy Committee, to monitor and react to signs of the housing market overheating Photo: PA
By Martin Strydom
The Bank of England "should not hesitate" to take action to cool the housing market if it poses a risk to the economy, Chancellor George Osborne said.
He was speaking ahead of the publication of an International Monetary Fund assessment of the state of the UK economy today, which is expected to drop criticism of the government's economic strategy and limit its assessment of the UK economy to the potential risk to recovery of rising house prices.
House prices leapt by nearly £220 every day in May, marking the biggest month-on-month rise over a decade, Halifax reported on Thursday and earlier this week figures from Nationwide showed average house prices have risen above its pre-financial crisis peak to a record high of £186,512.
Mr Osborne said he expected to agree with everything said by Christine Lagarde, the IMF managing director, is the fund's annual analysis on the UK economy.
He told BBC Radio 4's Today programme: "We need to be alert to the build-up of debt in the housing market, we need to be alert when we see house prices rising."
The Chancellor said he had given the Bank of England the tools to react to signs of the housing market overheating with the creation of the Bank of England's Financial Policy Committee.
Mark Carney, the Governor of the Bank of England, has said that Britain’s housing market has deep structural problems and rising prices represent the biggest risk to the economy. He said the Bank remains "vigilant".
Expectations are rising that the Financial Policy Committee could unveil further controls on mortgage lending at its meeting on June 17. Economist thinks it could impose additional capital requirements on high loan-to-income mortgages.
The IMF report comes as a report from Experian, the information services group, warns that homebuyers are severely overestimating their ability to repay their mortgage and could see their finances stretched to breaking point in the event of an interest rate rise.
The BoE, which on Thursday held rates at a record low of 0.5pc for a fifth year in a row, expects rates to start to rise next year.
Based on research among 1,500 Britons looking to buy a home, the report shows homebuyers on avergae are looking at property worth £235,000.
With a combined household income of £50,674, the average homebuyers claim they can afford a mortgage payment of £780 a month. The report says that based on a 10pc deposit, repayments on such a property would be nearer to £1,300 a month, and potentially more, depending on credit history and a lenders policy rules.
There have been signs that the housing market is cooling slightly with many experts putting it down to tougher mortgage rules introduced earlier this year and higher house prices.
New analysis by property agents Savills shows that tighter mortgage conditions now mean only wealthier first–time buyers or those with financial support from their families are managing to get on the ladder.
First-time buyers are having to raise record deposits to secure a place on the property ladder, the estate agents said. They put down £9.4bn in deposits over the 12 months to the end of March, an increase of 81pc from the £5.2bn raised in the year to October 2007.
UK house prices have jumped over the past year to a record high of £186,512, rising above its pre-financial crisis peak, Nationwide figures showed this week.