LONDON: The Bank of England looks set to take tougher action on Thursday than expected just weeks ago to rein in fast-rising British house prices, although a blanket limit on how much homebuyers can borrow is seen as unlikely.
BoE Governor Mark Carney has warned that the housing market is the biggest domestic threat to financial stability, and on Thursday the British central bank is scheduled to make recommendations for lenders on how to reduce this risk.
The spotlight on the BoE has intensified after finance minister George Osborne said this month he would grant it legal powers to ban banks from lending more than a certain multiple of a borrower’s income or of the value of a house.
That means that in addition to imposing more stringent mortgage affordability requirements, the BoE may urge banks to limit riskier lending. But an immediate cap on all high loan-to-value or loan-to-income mortgages looks less likely, given Carney’s commitment that the central bank’s Financial Policy Committee would act gradually as well as early to rein in housing risks.
“The tone will reflect an increased concern on the FPC around the risks from the UK housing market. We’ve seen one or two hints in that direction from the Governor,” said James McCann, UK and European economist at Standard Life Investments. “Previously Carney would emphasise, we don’t set policy for within the M25,” McCann said, referring to the motorway that circles London. “Now I think he has seen more signs of a broader, a more pronounced, a more regionally consistent rise in UK housing market activity.”
Britain’s housing market has recovered rapidly thanks to record low interest rates, low unemployment and government schemes, with house prices up around 10 percent annually and by nearly twice as much in the capital.
Tougher rules on mortgage lenders introduced in April have seen fewer new mortgages approved in recent months but policymakers remain worried, highlighting the risks of lax mortgage underwriting standards and mortgage indebtedness.
Pending Osborne’s pledge to give it legal powers to stop lenders from issuing mortgages that are too big compared to borrowers’ incomes or the value of their home, the BoE can only advise banks not to do so.Reuters
