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Carney issues warning on housing market

Bank of England governor Mark Carney has warned rapid increases in house prices and mortgage lending pose the biggest current risk to the UK economy, and says the Government has approached the Bank about changing the terms of Help to Buy.

In an interview with Sky News yesterday, Carney said there are “deep, deep problems” in the housing market, highlighting the supply shortages that have sent prices rocketing. He said: “The issue around the UK housing market is that there are not sufficient numbers of houses being built.”

He also said the Bank of England was not in a position to fix the problem, saying: “We are not going to build a single house at the Bank of England. We can’t influence that.”

Carney said the Bank was also considering changing the terms of Help to Buy, following an approach by Chancellor George Osborne.

He said: ”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.”

The number of large mortgages being issues to buyers is increasing and Carney said the Bank has concerns about this rise, and that it is something that is being monitored closely.

Carney said he is concerned about the increase in mortgage debt being taken on but that the Bank can only influence whether UK lenders are sufficiently capitalised against the risk being assumed in the housing market.

He said: “The biggest risk to financial stability, and therefore to the durability of the expansion, centres on the housing market and that’s why we’re focused on that.”

Government initiatives such as Help to Buy and the Funding for Lending scheme – which is now closed for mortgage lending – have increased the availability of mortgage finance.

As a result, first-time buyers as well as homemovers have been returning to the market at the fastest rate since before the crisis, pushing house prices up.  According to Nationwide, house prices in April were up 10.9 per cent year-on-year.

In March, Chancellor George Osborne pledged in his Budget speech to get “Britain building again” with industry analysts calling for at least 200,000 new homes to be built per year to meet current demands.


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There are 25 comments at the moment, we would love to hear your opinion too.

  1. “The issue around the UK housing market is that there are not sufficient numbers of houses being built.”

    Or more accurately insufficient numbers in places where people want to live.

  2. Said it before and will say it again; the way we facilitate mortgage lending in this country is all to cock, it needs radicle change ? and it needs to come from government, not via regulatory change or thematic reviews !!!

    Also I don’t believe turning to country into a huge housing estate will solve any problems, if we haven’t got enough houses to go round then we must be over populated ?

  3. Hector's House 19th May 2014 at 9:41 am

    Why doesn’t Mr Carney introduce measures to stop overseas buyers ‘parking their money’ into London Property?

    This is the main cause of the current property price bubble.

  4. More tough talk what is needed is action!

    The problem of housing is not just supply but speculators e.g. buy to let owners. In the 80s the government change the taxation system and lending system to encourage homeownership. This was okay when people were buying houses for their own residency but the system needs changing to discourage buy to let owners as they are driving up both house prices and rents.

    Yes we need to build more houses and in fact I think it’s come for the government to take direct action and start building social housing on a massive scale.

    I also believe that government need to change the tax system, one of the first things I would do is to stop giving tax relief on loans connected to buy to lets. I suspect you would have a flood of property onto the housing market if this simple change was enacted in the next budget. Giving homeownership a realistic chance to millions of individuals who are forced to rent due to high property prices and high rents. For far too long government has allowed house price inflation to spiral out of control since 1997 primarily due to an increase in buy to let investors and this boil needs bursting.

    Drive behaviour by changing the tax system simple!

    I think that we also need a system of the right to longer leases and an independent rent review board pretty much like the one for commercial property.

  5. GP Styles (GPS Economics) 19th May 2014 at 10:13 am

    Carney is very late to this issue. The lights have been flashing red since last summer…. but perhaps he has only just realised that if it gets ugly after the General Election in 2015 he will be right in the firing line.

  6. The so called house price bubble is not spread across the UK evenly – most of the hlep to buy (75%) is outside of London and the SE in areas where there is no great heating up! Bringing in measures across the entire system is not what is needed. I really dont know where the evidence is about the large mortgages being taken on is based on – the MMR should make these affordable.

  7. When I read stuff like this I can understand why those who live in Scotland could be tempted to shake off London. People who live in the London bubble just don’t get it do they? It’s another world! The fact is, those who are charged with some responsibility haven’t got a clue how to deal with it. The textbooks don’t exist.

  8. @Peter

    Respectfully, I couldn’t disagree more. The public view BTLs as the most attractive retirement planning strategy because simply don’t appeal.

    To prevent a business from offsetting expenses namely loan interest is a nonsense. a growing segment of the population are renters because they have neither sufficient income nor equity to borrow and buy, preventing individuals from meeting the demand for rental accomodation from those people helps no-one.

    Building an order magnitude more is the only answer, mostly on greenbelt and up much higher and more widely in London.

  9. Sorry should have said Pensions don’t appeal. We can thanks successive governments for that but the public must not be prevented from planning for their retirement in any way they see fit no matter how misguided.

  10. Once again the economy is potentially set to suffer due to the housing market in the South East.

  11. Sam

    The tax system already treats trading business and investment business differently for IHT. So why not for BLT interest payments as it is clear from your reaction that it would work!!!

    Soon or later it will change and I feel sorry for the new investors that are been con into a low yield rates, heavily tax investment with a big liability. if you used that type of language, I wonder how many takes you would have?

  12. For god sake. It’s just demand and supply. Page one. There are lots of other factors, but the root is that there are not enough houses being built.

  13. @Frazer. Quite but NIMBY’s possess asymmetric power.

  14. Grey Haired Underwriter 20th May 2014 at 9:09 am

    Is Carney yet another who thinks that London represents the whole of the UK? The last thing this industry needs is more Regulation especially when all it does is hit residential loans. Perhaps an intrusion into BTL might stop such fights over the bottom end of the market and I love the concept of stopping what is effectively tax relief on the interest payable on BTL loans.

  15. The Conservative government ever since Mrs Thatcher have held a strong belief that as many people as possible should own their own home. This belief is at the heart of their recent policies to make it easier for people to buy their own homes. Any attack on that policy is an attack against ordinary decent folk of this country who want to own their own home.

  16. @KenDurkin
    Part of the way they did that was to force local authorities to sell off their housing stock for a fraction of the real value. Worse than that, they then changed the rules on local authority finance by preventing them from using the council house receipts to build new properties.
    So public rental sector was decimated, the private rental sector hasn’t come close to being able to pick up the slack, and we have thousands of people living in substandard, overcrowded accomodation.
    Presumably a lot of those people are ‘ordinary decent folk’ too??

  17. Selling council houses to their occupants was a truly liberating move, very popular among the working classes. Discounts varied depending on how long the occupants had rented the property for. Only by selling off the stock of council houses to people with no hope of ever owning their own home was it possible to work towards the ideal of a property owning democracy.

  18. One of the biggest problems that faces the housing market is not just shortage of property but also the recirculation of property. How many individuals own second homes or in fact a holding onto properties for investment purposes without any tenants.

    The government in the past used right by as an effective way of increasing homeownership now it needs to use the taxation system to force individuals to recirculate property. This could be done in the following ways:

    Remove interest relief on buy to let properties.

    Charge owners of properties Council tax on empty properties as per commercial properties.

    Bringing some form of BLT registration scheme so that the taxman knows who owns these types of properties. After all how many property owners are actually disclosing incomes on tax return forms.

  19. @ Peter

    Investment properties with no tenants? Presumably you’re referring to Oligarchs and the like on Bishops avenue? How would disallowing deductible relief prevent this or a council tax imposition that is a tiny fraction of the market value of the property? Arguably empty properties are a good thing as far as the council is concerned, no occupants means no usage of services.

    Since you appear to be concerned with rent seeking should we also tax scheme pensions? Those people have seen a massive rise in the value of those obligations simply though a demographic shift and QE.

    I reiterate, the general public value BTL as a a retirement planning tool more highly that much of what the advisory community is offering to them.

  20. the elephant in the room 20th May 2014 at 2:31 pm

    Affordability going forward is clearly one of the keys concerns. One obvious way to help borrowers guard against future rate rises would be to offer long term fixed rates – not 5 years, but 10 years or even term fixes, like they have in other countries.

    Why this is not already happening is beyond me? What a great time for borrowers to lock down their mortgage costs and minimise the possibility of financial ruin and repossession!

    It seems to me that almost every mortgage deal currently on offer comes with a free Sword of Damocles. It’s almost like the banks want it to all go wrong again!

  21. Sam

    Take the vested interest out of it, are you saying the above inflation growth in the housing market is good.

    I think that you will find that the answer to that question is NO.

    Do any of us want another credit crush NO.

    BTL’s are pushing up both rents and maybe property values – if that is the case then government have to do something and IMHO that is change the tax rules to make BLT less appealing. As it is obvious to me that some mortgage broker and people investing in BLT can not do their sums. The average BTL in my area Ipswich yields less then 5% if you are lucky, but still people are buying because of the half truths of some in the industry and media.

    By the way there are lots of empty flats in Ipswich and some houses and they are not owned by super rich Oligards

    I just wish that client could sue the adviser and people in the media for over hyping the market, – Oh I forgot BTL are not regulated!

  22. @ the Elephant in the room
    Finally some has got a grip on the whole argument !!!

    Forget all the other crap, BTL’s etc etc etc that really has no bearing on the real issue, the way we lend money for mortgage’s (and other) in this country is just wrong plain and simple.

    All this fudging and re-fudging will bring us right back were we started

  23. Peter

    No-one wins from cost push inflation. Demand push has its place. My concern is that tinkering with the tax system, or planning system or help to buy or any number of taxpayer underwritten initiatives simply add to the demand side without addressing the fundamental truth that the population of London is growing by 500k a decade (plus much of the south east) with no commensurate growth in supply of housing. Punishing would be employees and employers with what is in effect a Land value tax is not a way to grow a vibrant economy in my opinion.

    I can’t answer why so many properties in Ipswich are empty, I suspect that the low yield of tenanted properties suggests a dearth of tenants or oversupply of properties. I can’t imagine that many owners keep houses empty voluntarily and still regard them as investments.

  24. Those who want to stop the help-to-buy scheme are those who do not believe in a property owning democracy. They think some should be allowed to own property and others should not be allowed to own property.

  25. Home ownership is slowly in reverse, it peaked at 70% in 2006, is about 65% now and projected to fall to 60% by 2025, and 50% by 2040 (Smith Inst. Tomorrows Borrowers)

    Reasons are many, social and economic, unsuitable housing stock; the UK has the largest proportion of houses (69%) in Europe and the lowest number of (affordable) flats. MMR will reduce owner occupation further, as will an ageing pensionless population.

    The american suburban dream is over.

    The growth is buy to let for the brave, high demand, rent arrears running at 10% (Shelter) evictions have also doubled in the last 12 months.. Increasing interest rates on over geared landlords loans, can inevitably have the effect of increasing rents, or worse those tenants will be made homeless if the landlord gets into trouble or sells up.

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