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Bank of England's Mark Carney warns on housing market Bank of England's Mark Carney warns on housing market
(35 minutes later)
The governor of the Bank of England has given his strongest warning yet about the dangers to Britain's economy posed by the booming housing market.The governor of the Bank of England has given his strongest warning yet about the dangers to Britain's economy posed by the booming housing market.
Mark Carney said the market represented the "biggest risk" to financial stability and the long-term recovery.Mark Carney said the market represented the "biggest risk" to financial stability and the long-term recovery.
He added there were deep structural problems which needed to be addressed.He added there were deep structural problems which needed to be addressed.
He told Sky News the fundamental problem was a shortage of homes - and the Bank of England had no solution to that.He told Sky News the fundamental problem was a shortage of homes - and the Bank of England had no solution to that.
In an interview on the Murnaghan show, he said the Bank was "closely watching" rising property prices and the subsequent increase in large-value mortgages, which he warned could lead to a "debt overhang" which could destabilise the economy.In an interview on the Murnaghan show, he said the Bank was "closely watching" rising property prices and the subsequent increase in large-value mortgages, which he warned could lead to a "debt overhang" which could destabilise the economy.
'Making progress''Making progress'
Mr Carney said: "When we look at domestic risk, the biggest risk to financial stability and therefore to the durability of the expansion [of the economy]; those risks centre in the housing market."Mr Carney said: "When we look at domestic risk, the biggest risk to financial stability and therefore to the durability of the expansion [of the economy]; those risks centre in the housing market."
He added: "There are not sufficient houses built in the UK. To go back to Canada, there are half as many people in Canada as in the UK, twice as many houses are built every year in Canada as in the UK and we can't influence that."He added: "There are not sufficient houses built in the UK. To go back to Canada, there are half as many people in Canada as in the UK, twice as many houses are built every year in Canada as in the UK and we can't influence that."
He said the Bank of England could not help with a fundamental shortage of homes: "The Bank of England will not be building houses any time soon."He said the Bank of England could not help with a fundamental shortage of homes: "The Bank of England will not be building houses any time soon."
Instead, he said, it would ensure banks had enough capital to withstand the risks of lending, and check lending procedures to ensure mortgages were given only to those who could afford them.Instead, he said, it would ensure banks had enough capital to withstand the risks of lending, and check lending procedures to ensure mortgages were given only to those who could afford them.
The deputy prime minister, Nick Clegg, echoed that point. He told the BBC's Andrew Marr: "The big long-term problem is that we simply do not build enough homes in this country. We haven't done so for years; we are making progress now, but we need to do much more in the future."The deputy prime minister, Nick Clegg, echoed that point. He told the BBC's Andrew Marr: "The big long-term problem is that we simply do not build enough homes in this country. We haven't done so for years; we are making progress now, but we need to do much more in the future."
But Mr Clegg also said the government should scale back its Help to Buy scheme, if the Bank concluded the housing market was overheating.
Mr Carney said he was watching the housing market closely, and would tell the chancellor if he believed changes needed to be made: "We could limit amounts of certain types of mortgages that banks could undertake, we could provide advice. The chancellor has asked us if we would provide advice on changing the terms of Help to Buy. "
'Over-enthusiasm''Over-enthusiasm'
Mr Carney said the Bank had an important role behind the scenes: "What we can influence is whether the banks are strong enough.Mr Carney said the Bank had an important role behind the scenes: "What we can influence is whether the banks are strong enough.
"Do they have enough capital against risks in the housing market, whether underwriting standards are tough enough so that people can get mortgages if they can afford them?"Do they have enough capital against risks in the housing market, whether underwriting standards are tough enough so that people can get mortgages if they can afford them?
"And by reinforcing both of those we can reduce the risks that come from a housing market that has deep, deep structural problems.""And by reinforcing both of those we can reduce the risks that come from a housing market that has deep, deep structural problems."
Housing analyst Henry Pryor said the Bank was also acting to ensure people did not borrow more than they could afford: "What they are doing is bringing in these new regulations to make it much harder, much tougher, for those of us who need a mortgage in order to buy a house, to actually qualify for one. Housing analyst Henry Pryor said the Bank was also acting to ensure people did not borrow more than they could afford: "What they are doing is bringing in these new regulations [which include a series of tougher questions about ability to repay] to make it much harder, much tougher, for those of us who need a mortgage in order to buy a house, to actually qualify for one.
"And it's tricks like that, it's little wrinkles like that, that the Bank of England are going to use in order to try and dampen down over-enthusiasm in the housing market.""And it's tricks like that, it's little wrinkles like that, that the Bank of England are going to use in order to try and dampen down over-enthusiasm in the housing market."
The Nationwide Building Society has said annual house price growth in the UK rose by 10.9% in the year to April - the highest inflation rate for seven years. Major lenders calculate house prices are rising at roughly 10% a year - the highest since the credit crisis of 2008.
It said the average UK house price now stood at £183,577. The average UK house price is around £180,000.
Figures published by rival lender the Halifax, meanwhile, suggested UK house prices had risen by 8.5% year-on-year.
It said the average house price in the UK was £177,648.
The year-on-year comparison is calculated slightly differently by the two lenders.
The Halifax compares the previous three months with the same three months a year earlier to give a smoother comparison, rather than a direct comparison of the equivalent months as calculated by the Nationwide.
'Reduce dividends''Reduce dividends'
The governor's warning comes amid a rising a chorus of concern.The governor's warning comes amid a rising a chorus of concern.
Sir Jon Cunliffe, one of the Bank of England's deputy governors, previously said it would be "dangerous to ignore the momentum that has built up in the housing market".Sir Jon Cunliffe, one of the Bank of England's deputy governors, previously said it would be "dangerous to ignore the momentum that has built up in the housing market".
The region where prices are rising fastest - at double the national average - is London and the South East.The region where prices are rising fastest - at double the national average - is London and the South East.
But Mr Carney said that situation was beyond his control - and was not a threat to the rest of the country: "There is a large cash market in London, a particularly foreign aspect to it. From our perspective they don't cause risk to the British economy."But Mr Carney said that situation was beyond his control - and was not a threat to the rest of the country: "There is a large cash market in London, a particularly foreign aspect to it. From our perspective they don't cause risk to the British economy."
But David Blanchflower, a former member of the Bank's rate-setting Monetary Policy Committee, said the boom was "a threat to stability".
"The Bank is going to have to step in because, ultimately, if the house prices don't slow they're going to have to raise rates and that would be very harmful," he told BBC Radio 5 live's Sunday Breakfast.
"It will increase the value of the pound, it'll reduce dividends, it will raise unemployment and it'll kill the house price off and put people into negative equity so that's really a big concern.
"It's a balance that Mark Carney's got to walk and that's why he says it's such a big threat."
Housing Minister Kris Hopkins said: "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."