Carney moves to tighten mortgage lending

The Bank of England is mulling over ways to cool Britain's housing market without affecting growth.

"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."

Recommended

Quantitative easing: too much of a good thing
UK Economy

Quantitative easing: too much of a good thing

The Bank of England is addicted to quantitative easing (QE), the House of Lords has warned. What does that mean for investors?
26 Jul 2021
Eight of the best properties for sale for around £500,000
Houses for sale

Eight of the best properties for sale for around £500,000

From a Georgian terraced house in a gated almshouse development in Acton, London, to a former fisherman’s cottage in Devon, eight of the best properti…
23 Jul 2021
The myth of hypothecated taxes
Tax

The myth of hypothecated taxes

The government wants to add a penny on our National Insurance contributions to pay for social care. But it won’t, says Merryn Somerset Webb. It will j…
23 Jul 2021
Lockdown Day saw the market hit rock bottom – could Freedom Day mark a top?
UK stockmarkets

Lockdown Day saw the market hit rock bottom – could Freedom Day mark a top?

When the UK locked down against Covid, markets plunged, but recovered quickly. Could England’s removal of restrictions mark the market top, asks John …
19 Jul 2021

Most Popular

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
Why the UK's 2.5% inflation is a big deal
Inflation

Why the UK's 2.5% inflation is a big deal

After years of inflation being a financial-assets problem, it is now an “ordinary things” problem too, says Merryn Somerset Webb. But central banks st…
16 Jul 2021
Three companies that are reaping the rewards of investment
Share tips

Three companies that are reaping the rewards of investment

Professional investor Edward Wielechowski of the Odyssean Investment Trust highlights three stocks that have have invested well – and are able to deal…
19 Jul 2021