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.