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BoE deputy and ex-Chancellor sound alarm on ‘overheated’ housing market

Bank of England deputy governor Sir Jon Cunliffe and former chancellor Lord Lawson have have warned that the UK’s housing market could be headed for trouble, with Lawson calling for immediate action to taken to curb London’s property boom.

In his speech at the Worshipful Company of International Bankers last week, Cunliffe said the “growing momentum” of the housing market is now one of his biggest concerns and that care must be taken to avoid a housing crash.

He added: “This is a movie that has been seen more than once in the UK.”

Separately, in an interview with Total Politics, Lawson suggests reducing the Help to Buy cap from £600,000 to £300,000 to effectively carve London out of the scheme.

Lawson said there is “practically nothing” for less than £300,000 in the “overheated” London market and that halving the cap would effectively end Help to Buy in the capital. He says: “It would still be a benefit in the north where there is no overheated housing market. I would like to see that. It does not mean it will actually happen.”

According to the Council of Mortgage Lenders, between April 2013 and the end of Q3 66,100 mortgage loans were made in London. Government figures show that 1,312 of those were through Help to Buy. The number of Help to Buy mortgages in London, as in the rest of the country, has been steadily growing since the scheme was introduced in April 2013. 

In the first three months of the scheme’s operation there were just 28 Help to Buy mortgages approved in London and 1,175 approved across England. In Q1 this year 508 Help to Buy mortgages in London were approved out of 6,528 in England.

Figures from Nationwide showed annual house price inflation is now at 10.9 per cent. The building society’s analysis of Land Registry data shows around a quarter of London homes sold in 2013 were worth over £500,000 and around 6.5 per cent were worth over £1m.

Consultancy GPS Economics director Gary Styles has backed the calls to take action.

He says: “The London market has been exhibiting the characteristics of a standard bubble for a while so it is welcome that someone from the Bank is now saying it. Reducing the cap is the first thing to be done, but other things should be looked at too.”

He argues the Bank has been slow to publicly acknowledge that what happens in the London market is likely to have an effect on the rest of the country, for example if it leads to a rise in interest rates. 

Styles says as long as people expect London house prices to continue to rise they will do so. 

But he adds: “You can change that mentality by sending a clear signal. Even a symbolic move like lowering the cap could do that.”

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