Carney cautions about risks of housing bubble in UK

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br ukhouses (41997437) Bloomberg UK house price growth accelerated last month to about 10 percent year on year, prompting Bank of England governor Mark Carney to caution that it was the biggest risk to stability. Photo: Bloomberg

William Schomberg and Stephen Addison London

Bank of England (BoE) governor Mark Carney has given his strongest warning to date about the risks of a housing bubble and said policymakers were looking at new measures to control mortgage lending.

The British housing market had “deep, deep” structural problems, among them insufficient construction of new homes, Carney said yesterday. “When we look at domestic risk the biggest risks to financial stability, and therefore to the durability of the expansion, centre on the housing market and that’s why we are focused on that,” he said.

British house prices rose about 10 percent in the 12 months to April but Carney has previously stressed that the BoE would seek to take measures to exert more control over mortgage lending before it resorted to raising interest rates, which could hurt the economic recovery.

Carney said the bank would check lending procedures “so people can get mortgages if they can afford them but they won’t if they can’t”.

He said the bank was looking at the possibility of recommending that banks do more to limit the size of mortgages based on the incomes of borrowers, a potentially controversial move by the BoE that could be felt by many would-be homeowners.

“The level of higher loan-to-income mortgages, ones above four-and-a-half, five times loan-to-income, potentially could store up bigger problems for the future and we need to be careful,” he said.

“We need to be calibrated, we need to be proportionate, if we were to suggest some adjustments to the amount of these types of mortgages that banks should underwrite.” – Reuters

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