Britain’s housing market has deep structural problems and rising prices represent the biggest risk to the economy, the Governor of the Bank of England warns today.
Mark Carney expresses concerns about another “big debt overhang” building up, with homebuyers taking out loans many times larger than their salaries. He says in an interview with Sky News that the UK desperately needs new house-building to help control price inflation.
“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,” Mr Carney says.
“We would be concerned if there were a rapid increase in high loan to value mortgages across the banks. We’ve seen that creeping up and it’s something we’re watching closely.”
In London, prices are already 25 per cent above their 2008 peak, and are now rising at a rate of about 18 per a year, with the average home in the capital costing more than £450,000. Prices across the country are currently rising at more than 10 per cent a year.
Last week analysis showed that the number of £1 million properties has doubled since 2008.But it has also emerged that new stricter rules for mortgage lending appear to be putting housing transactions at risk, with some interviews to obtain a mortgage lengthening from 45 minutes to three hours.
The Mortgage Market Review, which came into force last month, requires applicants to provide greater detail about their finances to make sure borrowers can afford to repay home loans.
Information such as energy, food and childcare bills can be requested, along with details of spending on personal grooming and pets.
However Mr Carney says there is evidence that large mortgages – where lenders approve loans for more than four times people’s salaries – are on the rise again.
Last week he surprised many by playing down the chances of an imminent rise in interest rates despite fears of a growing house price bubble. But today he will state that the issue is the biggest current threat to 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 says.
Mr Carney says that compared to his home country of Canada, the UK builds half the number of new homes every year despite having twice the population, helping to drive up house price inflation.
In an interview to be broadcast today, he says: “The issues around the housing market in the UK … is there are not sufficient houses built in the UK. (There are) half as many people in Canada as in the UK, (but) twice as many houses are built in Canada every year than in UK.”
Asked if more houses need building, Mr Carney replies: “That would help us out. We’re not going to build a single house at the Bank of England. We can’t influence that. What we can influence … is whether the banks are strong enough, do they have enough capital against risk in the housing market?”
Mr Carney says they can also check lending procedures “so that people can get mortgages if they can afford them but they can’t if they won’t”. He adds: “By reinforcing both of those we can reduce the risk that come from a housing market that has deep, deep structural problems.”
Earlier this month the OECD think tank called on the Bank of England to impose measures to help quell rising house prices. Canada, whose population is around half the size of the UK’s, builds around 200,000 new homes a year.
In contrast, last year there were just 133,000 similar properties built in the UK. Both the Coalition and Labour are committed to building hundreds of thousands of new homes.
However, construction still lags behind government targets. Kris Hopkins, housing minister, said: “In 2010 we inherited a broken housing market, but our efforts to fix it are working. We’ve scrapped the failed top-down planning system, built over 170,000 affordable homes, and released more surplus brownfield sites for new housing.
We’ve also helped homebuyers get on the housing ladder, because if people can buy homes, builders will build them. “Housebuilding is now at its highest level since 2007 and climbing.
Last year councils gave permission for almost 200,000 new homes under the locally-led planning system, and more than 1,000 communities have swiftly taken up neighbourhood planning. It’s clear evidence the Government’s long-term economic plan is working.”
telegraph.co.uk
Mark Carney expresses concerns about another “big debt overhang” building up, with homebuyers taking out loans many times larger than their salaries. He says in an interview with Sky News that the UK desperately needs new house-building to help control price inflation.
“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,” Mr Carney says.
“We would be concerned if there were a rapid increase in high loan to value mortgages across the banks. We’ve seen that creeping up and it’s something we’re watching closely.”
In London, prices are already 25 per cent above their 2008 peak, and are now rising at a rate of about 18 per a year, with the average home in the capital costing more than £450,000. Prices across the country are currently rising at more than 10 per cent a year.
Last week analysis showed that the number of £1 million properties has doubled since 2008.But it has also emerged that new stricter rules for mortgage lending appear to be putting housing transactions at risk, with some interviews to obtain a mortgage lengthening from 45 minutes to three hours.
The Mortgage Market Review, which came into force last month, requires applicants to provide greater detail about their finances to make sure borrowers can afford to repay home loans.
Information such as energy, food and childcare bills can be requested, along with details of spending on personal grooming and pets.
However Mr Carney says there is evidence that large mortgages – where lenders approve loans for more than four times people’s salaries – are on the rise again.
Last week he surprised many by playing down the chances of an imminent rise in interest rates despite fears of a growing house price bubble. But today he will state that the issue is the biggest current threat to 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 says.
Mr Carney says that compared to his home country of Canada, the UK builds half the number of new homes every year despite having twice the population, helping to drive up house price inflation.
In an interview to be broadcast today, he says: “The issues around the housing market in the UK … is there are not sufficient houses built in the UK. (There are) half as many people in Canada as in the UK, (but) twice as many houses are built in Canada every year than in UK.”
Asked if more houses need building, Mr Carney replies: “That would help us out. We’re not going to build a single house at the Bank of England. We can’t influence that. What we can influence … is whether the banks are strong enough, do they have enough capital against risk in the housing market?”
Mr Carney says they can also check lending procedures “so that people can get mortgages if they can afford them but they can’t if they won’t”. He adds: “By reinforcing both of those we can reduce the risk that come from a housing market that has deep, deep structural problems.”
Earlier this month the OECD think tank called on the Bank of England to impose measures to help quell rising house prices. Canada, whose population is around half the size of the UK’s, builds around 200,000 new homes a year.
In contrast, last year there were just 133,000 similar properties built in the UK. Both the Coalition and Labour are committed to building hundreds of thousands of new homes.
However, construction still lags behind government targets. Kris Hopkins, housing minister, said: “In 2010 we inherited a broken housing market, but our efforts to fix it are working. We’ve scrapped the failed top-down planning system, built over 170,000 affordable homes, and released more surplus brownfield sites for new housing.
We’ve also helped homebuyers get on the housing ladder, because if people can buy homes, builders will build them. “Housebuilding is now at its highest level since 2007 and climbing.
Last year councils gave permission for almost 200,000 new homes under the locally-led planning system, and more than 1,000 communities have swiftly taken up neighbourhood planning. It’s clear evidence the Government’s long-term economic plan is working.”
telegraph.co.uk
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