Bank of England steps in to halt Housing Boom

Sunday, 29 June 2014

The Bank of England is getting ready to intervene in the British housing market, by tightening up the rules around getting a mortgage.

This month (June 2014) the Office of National Statistics revealed that house prices have risen by an average of 10% since May 2013, with prices in London increasing by a whopping 19% alone. The boom might be great news for property owners, but many industry experts have expressed concern that we could be on our way to another housing bubble.

Mortgage advances have already been restricted by Lloyds Banking Group and the Royal Bank of Scotland, and it’s expected that the Bank of England will follow suit. The Bank is also likely to raise its base rate of 0.5% before the end of 2014, to discourage people from borrowing heavily.

As part of the new measures, banks will be told to ask more questions: for example, checking that borrowers would still be able to pay back the loan if the base rate rises to 7%. Repaying a mortgage is already a big commitment, with home owners balancing other costs such as paying for utility bills, home insurance and general maintenance, which also need to be taken into consideration.

“Risky” mortgages (e.g. large ones) are the most likely to be targeted. It has been suggested that the Bank of England’s Financial Policy Committee (FPC) will cap the size of available loans, as a response to mortgages rising to three and half times the size of a borrower’s salary.

These measures could see Britain follow in the footsteps of Sweden, which has introduced a range of measures designed to soothe the buoyant housing markets. Martin Andersson, the head of Sweden’s financial regulator, spoke to the Sunday Telegraph about how Britain needs to take action now to cool the housing market in order to secure financial stability in the future.

Although there are worries about the potential housing bubble, the rest of the economy seems to be in fine fettle. A recent survey by Lloyds Bank found that consumers are more confident now than they have been since 2010, when the survey began. Not only are people feeling positive about their own financial situation, they also have more confidence in the financial situation of the UK.

Sources:

1. www.theguardian.com/money/2014/jun/18/uk-house-prices-rise-10-percent
2. www.thisismoney.co.uk/money/markets/article-2665012/Curbs-riskier-mortgage-lending-expected-BoEs-FPC-week.html
3. www.telegraph.co.uk/finance/bank-of-england/10917415/Full-interview-transcript-Martin-Andersson-head-of-Swedens-financial-regulator.html
4. www.express.co.uk/finance/city/484213/Bank-of-England-to-act-on-housing-as-spending-takes-off
 

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