Treasury select committee MPs have warned that current property price levels could be under threat if interest rates increase.
In the committee’s feedback on the pre-Budget report, the MPs warn that while house prices have steadied, they have done so at a relatively high level compared with earnings, leaving them vulnerable to further shocks. The report says: “House prices appear to have stabilised, but at an historically high price to earnings ratio. We are concerned that such a position is potentially unsustainable, given that monetary policy will eventually tighten.”
The MPs call on the Government to undertake further work into the sensitivity of the housing market to future employment and interest rate movements in time to produce feedback for the next Budget.
The committee criticises the Government for not providing enough detail on how it intends to reduce the structural deficit and for failing to provide more detailed figures on future expenditure. The MPs point that there is uncertainty over the best time to withdraw the fiscal stimulus.
Select committee chairman and Labour MP John McFall says: “The governor of the Bank of England encapsulated the problem of when to withdraw fiscal stimulus, when he told us, ‘we should do it at the right time.’ Unfortunately, there is no common definition of the right time for fiscal consolidation.
“We consider clarity, even if it is clarity about the degree of uncertainty surrounding the forecasts, as essential to strengthening this crucial credibility.”