BANK of England governor Mark Carney yesterday gave his strongest warning yet about the dangers to the UK’s capitalist economy posed by a collapse of the housing market.
Carney said the market represented the ‘biggest risk’ to financial stability and any long-term recovery, adding there were deep structural problems which needed to be addressed.
In an interview on the Murnaghan show on Sky News, he said the Bank of England was ‘closely watching’ rising property prices and the subsequent increase in large-value mortgages.
He warned this could lead to a ‘debt overhang’ which could destabilise the economy. Liberal Democrat Deputy Prime Minister Clegg said if the Bank of England governor ‘says we should pare back on some government schemes like Help to Buy, I think we should do so’.
Clegg added that, ‘We should build more homes.’ This came after Carney said: ‘When we look at domestic risk, the biggest risk to financial stability and therefore to the durability of the expansion (of the economy) those risks centre in the housing market.’
He added: ‘There are not sufficient houses built in the UK. To go back to Canada, there are half as many people in Canada as in the UK, twice as many houses are built every year in Canada as in the UK and we can’t influence that.
‘What we can influence is whether the banks are strong enough. Do they have enough capital against risks in the housing market, whether underwriting standards are tough enough so that people can get mortgages if they can afford them?
‘And by reinforcing both of those we can reduce the risks that come from a housing market that has deep, deep structural problems.’
The Nationwide Building Society has said annual house price growth in the UK rose by 10.9% in the year to April – the highest inflation rate for seven years. It said the average UK house price now stood at £183,577.
Sir Jon Cunliffe, one of the Bank of England’s deputy governors, has previously said it would be ‘dangerous to ignore the momentum that has built up in the housing market’.
David Blanchflower, a former member of the Bank’s rate-setting Monetary Policy Committee, agreed the housing bubble was ‘a threat to stability’.
He told BBC Radio 5 Live’s Sunday Breakfast: ‘The Bank is going to have to step in because, ultimately, if the house prices don’t slow they”re going to have to raise rates and that would be very harmful.
‘It will increase the value of the pound, it’ll reduce dividends, it will raise unemployment and it’ll kill the house price off and put people into negative equity so that’s really a big concern.
‘It’s a balance that Mark Carney’s got to walk and that’s why he says it’s such a big threat.’
