Should the Bank of England step in to cool the housing market?

The Bank of England has the power to cool Britain’s overheating property market. But will it use it?

I've written here before about the ways in which the Bank of England could control the housing fledging recovery/boom/bubble (in the north, the south and London respectively) if it felt like it hereand here.

The upshot is that the Financial Policy Committee can now control the amount of credit that goes to any one sector at will. This is entirely new territory for this generation of central bankers, and was little understood until quite recently the press has only just begun to discuss it.

The problem is that it's pretty politically charged stuff. Our elected government clearly wants house prices to rise and fast. If it didn't, it wouldn't be persevering with Help to Buy it would by now at the very least have cut the threshold for borrowing under the scheme from the price of a nice house in the booming south (£600,000) to the price of a nice house in the faltering north (more like £300,000).

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Given this, for the Bank of England to impose new affordability criteria on top of the new Mortgage Market Review rules; to force the banks to hold more capital against mortgages; or to simply insist on limited lending all round, would look, as the FT puts it, rather like "giving with one hand and taking away with the other."

So will the (technically) fully independent Bank of England use any of its powers? If it does it will need to act pretty fast. Research, says the FT, shows that if the authorities "act too cautiously" they tend to end up slowing rather than preventing bubbles.

Since 2009 the Bank of Israel has taken nine separate 'macroprudential' measures to cool its housing market. But house prices are still 25% above their historical averages relative to incomes. Why? It might have something to do with limited supply and a base rate of 0.75%.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.