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“Warp speed” to be avoided in housing market

The Governor of the Bank of England (BoE), Mark Carney, has warned of a “potential” housing price bubble here in the UK.

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In December, speaking at the Economic Club of New York, he was quoted as saying: “There is a history in the housing market of moving from stall speed to warp speed… we want to avoid that.”

He intimated that the BoE would intervene and tighten the lending requirements to this sector if they believed such a risk was evolving.

They have already acted on this premise by removing house purchase loans from their Funding for Lending Scheme, which will inevitably have the effect of restraining the housing market to some extent.

The Government’s independent budgetary watchdog The Office for Budget Responsibility has forecast that house prices will rise by 5.2% in 2014 and by 7.2% in 2015.

These fears were echoed by the Royal Institution of Chartered Surveyors (Rics), as their recent research has revealed more surveyors are expecting price rises than at any time in the last 14 years.

Simon Rubinsohn, the Chief Economist of Rics, said: “It’s no secret that the housing market is on the way up and prices are surging ahead in many parts of the country.”

He went on to add: “The improvement in wholesale and retail funding markets may mean the impact on mortgages is relatively limited.”

However, at the same time the Council of Mortgage Lenders (CML) was less pessimistic of a bubble forming, as they believe an unbridled property boom was unlikely and furthermore, borrowing for house purchases would continue to increase throughout 2014.

Their Chief Economist, Bob Pannell was also optimistic, stating that: “We think there are good grounds to be optimistic that the majority of households will cope with a slow but certain transition to more normal interest rates.” As mentioned elsewhere, he was referring to the BoE’s.

Governor confirming that he will not consider raising interest rates generally until the UK unemployment rate hits 7%, and maybe not even then. When they do indeed raise interest rates, this will have the effect of making mortgages more expensive and putting a brake on house prices.

Issued by: Enable Independent Financial Life Planners
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Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
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