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BoE survey shows growing fears over future house price crash

Fears that a future house price crash could damage the financial system have risen sharply in the last year, a key Bank of England survey shows.

The Bank’s twice-yearly Systemic Risks survey of 76 financial services firms shows 36 per cent believe falling prices are a key risk, compared to just 14 per cent in the second half of 2012.

The report states: “Concerns were concentrated almost exclusively on the residential market, where responses focused on the risk of a house price correction, with several respondents citing the risk of a bubble emerging in the near term.”

Firms also identified the low interest rate environment as dangerous with 43 per cent claiming it is a key risk, compared to just 9 per cent last year.

There were clear signs that funding is becoming easier to access with just 16 per cent claiming it is a systemic risk, compared to 32 per cent last year and 57 per cent in 2011.

Firms identified the risk of a country defaulting on its debts as the top risk with 74 per cent, closely followed by the risk of an economic downturn on 67 per cent.

The Government has launched two phases of the Help to Buy scheme in the last year as mortgage lending grows and access to high loan-to-value deals eases.

The Bank of England will review the scheme every year from next September but Labour wants an immediate review of the risks of rocketing house prices.

The scheme is due to last three years and Chancellor George Osborne has the power to make recommendations and warnings over its impact.

The latest Knight Frank survey said prices will rise 7 per cent this year and then grow 24 per cent over the next five years.

The Bank surveyed asset managers, banks, lenders, insurers and hedge funds were asked to list their top five key risks to the financial system between September 23 and October 24.

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