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| Bank of England holds off action on house prices despite bubble fears | Bank of England holds off action on house prices despite bubble fears |
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| The Bank of England has stepped back from taking immediate action to cool the housing market but is closely watching the sector, it said on Wednesday as revealed it was stepping up its assessment of the vulnerability of hedge funds to sudden changes in interest rates. | The Bank of England has stepped back from taking immediate action to cool the housing market but is closely watching the sector, it said on Wednesday as revealed it was stepping up its assessment of the vulnerability of hedge funds to sudden changes in interest rates. |
| The Bank's financial policy committee, which meets quarterly to assess risks to the financial system, is also reviewing work by the Treasury on preventing the risk of cyber-attacks to the banking industry. | |
| At a time when George Osborne's housing market schemes are raising concerns about sharp rises in house prices – particularly in London – the FPC said it would "closely monitor developments in the housing market and banks' underwriting standards". | At a time when George Osborne's housing market schemes are raising concerns about sharp rises in house prices – particularly in London – the FPC said it would "closely monitor developments in the housing market and banks' underwriting standards". |
| "The committee would be vigilant to potential emerging vulnerabilities," it said in the statement released after its latest meeting held on 18 September. | "The committee would be vigilant to potential emerging vulnerabilities," it said in the statement released after its latest meeting held on 18 September. |
| But while it is not moving immediately to cool the housing market, the FPC has been assessing the impact that sharp upward movements on long-term interest rates could have on households and major financial institutions. | But while it is not moving immediately to cool the housing market, the FPC has been assessing the impact that sharp upward movements on long-term interest rates could have on households and major financial institutions. |
| While it concluded that there was not an immediate threat to banks and insurance companies it wanted more information about the impact on hedge funds, which borrow money to take bets on stock markets, currencies and commodities. | While it concluded that there was not an immediate threat to banks and insurance companies it wanted more information about the impact on hedge funds, which borrow money to take bets on stock markets, currencies and commodities. |
| The City regulator, the Financial Conduct Authority, will do more work on the topic to assess the "potential amplification" through the financial system of interest rate changes – or perceptions of interest rate changes that may be caused by central bank policies on reducing the stimulus currently being pumped into markets to keep interest rates low. | The City regulator, the Financial Conduct Authority, will do more work on the topic to assess the "potential amplification" through the financial system of interest rate changes – or perceptions of interest rate changes that may be caused by central bank policies on reducing the stimulus currently being pumped into markets to keep interest rates low. |
| "The levels of leverage within, and therefore the vulnerability of, hedge funds needed to be looked at more closely. The FCA, together with staff across the Bank, will undertake further work to enrich the information available to the authorities on hedge funds in order that a more complete assessment of risks to financial stability can be made," the FPC said. | "The levels of leverage within, and therefore the vulnerability of, hedge funds needed to be looked at more closely. The FCA, together with staff across the Bank, will undertake further work to enrich the information available to the authorities on hedge funds in order that a more complete assessment of risks to financial stability can be made," the FPC said. |
| The FPC's comments on the housing market will be closely watched by the market as the chancellor has insisted he is not creating a housing bubble – even though property prices have broken through their pre-crisis peak. The average price of UK houses has now passed its peak of five years ago of £245,000 but Osborne has said the FPC will have powers to stop any over-inflation in house prices. | |
| The FPC noted that while mortgage approvals in July were 30% higher than a year earlier and average house prices in August were 5% higher than a year earlier, activity in the housing market was below historic averages. "Households' debt servicing costs were low and the ratio of house prices to earnings was at its level of a decade ago," the FPC said. | The FPC noted that while mortgage approvals in July were 30% higher than a year earlier and average house prices in August were 5% higher than a year earlier, activity in the housing market was below historic averages. "Households' debt servicing costs were low and the ratio of house prices to earnings was at its level of a decade ago," the FPC said. |
| "The committee noted that if risks to the stability of the financial system were to emerge from the housing market, both it and the microprudential regulators had a range of tools available to address those risks," it said. | "The committee noted that if risks to the stability of the financial system were to emerge from the housing market, both it and the microprudential regulators had a range of tools available to address those risks," it said. |
| It could provide guidance to firms on their "underwriting standards" – their lending criteria – impose additional capital requirements and make recommendations to the regulators on tightening affordability tests. | It could provide guidance to firms on their "underwriting standards" – their lending criteria – impose additional capital requirements and make recommendations to the regulators on tightening affordability tests. |
| "The committee agreed that, if it became necessary to deploy its tools, they would be used in a way that was proportionate to the risks and consistent with a graduated response," the committee said. | "The committee agreed that, if it became necessary to deploy its tools, they would be used in a way that was proportionate to the risks and consistent with a graduated response," the committee said. |
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