Carney moves to tighten mortgage lending

“So Mark Carney has gone on record as saying the booming housing market represents the biggest risk to Britain’s economic recovery,” says Katie Allen on Guardian.co.uk.

The Bank of England governor said last week that soaring house prices – up 10.9% year-on-year in April, according to Nationwide – are rising too fast and are a danger both to growth and financial stability.

But as the “age-old management maxim” goes: “Don’t bring me problems, bring me solutions.” So what exactly do Carney and his colleagues at the Bank propose to do to defuse the threat?

It’s easy to say what he’s not planning to do, notes Matthew Holehouse in The Daily Telegraph. “Carney came close to ruling out using interest rates to cool the housing market, saying monetary policy is the ‘last line of defence’.”

With the recovery still in its early stages and significant spare capacity still in the economy, policymakers are nervous about choking off growth by raising rates too soon. “Instead, the bank will use a range of new powers to intervene, including tightening the rules on mortgage lending.”

Alternatives to raising rates could include tougher “stress tests” on the ability of borrowers to repay, forcing banks to set aside more capital against mortgages – possibly targeted against loans in specific hotspots – and a curtailing of the government’s Help to Buy scheme, says Brian Milligan on BBC.co.uk.

But as Carney noted, the “deep, deep structural problems” with the supply of new houses in the UK are partly to blame for the price rises. This suggests that moves to increase construction must also play a role in letting the air out of the bubble.

Another key step would be to reform the tax system, argues Hugo Dixon on Breakingviews.com. “At present, housing is massively undertaxed compared to other assets.” An annual percentage charge on their value would force people to think about whether they need such big houses. And a larger one targeted at non-resident foreign owners could cool the London market.

In addition, there should be powers for the Bank to cap the size of a mortgage relative to the value of the property, plus an end to the “foolish” policy of Help to Buy. “None of these measures would be popular. But failure to act will cause much more damage in the long term.”

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12