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

When will interest rates go up?
UK Economy

When will interest rates go up?

Interest rates are now at 4%, and they could rise further in the months ahead.
3 Feb 2023
Top 10 up and coming property areas in the UK
Property

Top 10 up and coming property areas in the UK

New research shows rural areas make for the best investment, while London boroughs dominated the bottom 10
31 Jan 2023
Is now a good time to buy a house?
Property

Is now a good time to buy a house?

Is now a good time to buy a house? That’s something many people might be asking as house prices, and mortgage rates, begin to decline
30 Jan 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Wholesale gas prices are on a downward trajectory, but does this mean lower energy bills later this year?
27 Jan 2023

Most Popular

NS&I brings back one-year fixed bonds with highest rates since 2010
Personal finance

NS&I brings back one-year fixed bonds with highest rates since 2010

NS&I’s one-year fixed bonds are back on sale after being pulled off the market in 2019 - but is the rate any good?
1 Feb 2023
When will interest rates go up?
UK Economy

When will interest rates go up?

Interest rates are now at 4%, and they could rise further in the months ahead.
3 Feb 2023
Bank of England raises interest rate to 4%
Economy

Bank of England raises interest rate to 4%

The Bank of England raised rates by 0.5%, marking the base rate’s 10th consecutive increase.
2 Feb 2023