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

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?

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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

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 "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."

Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.