House price rises get the Bank of England warned of a housing bubble
Bank of England warning on housing bubble as prices rise
Andrew Bailey says Bank of England is watching the housing market carefully and will not allow a ‘free-for-all’ in mortgage provision
Kamal Ahmed By Kamal Ahmed10:15PM GMT 21 Dec 2013CommentsComments
One of the Bank of England’s most senior figures has warned homebuyers that there will be a clampdown on house purchases if there is any evidence that increasing prices are spiralling out of control.
Andrew Bailey, deputy governor of the Bank and the man charged with ensuring financial stability in the UK, said the housing market was one of the key issues for 2014.
He said controls could include strengthening the tests potential buyers have to go through before they are offered a mortgage and increasing the amount of capital banks have to hold against household lending.
Overall mortgage lending is overseen by the Prudential Regulatory Authority (PRA), an arm of the Bank which Mr Bailey heads. The PRA can order banks to hold more money on balance sheets for every mortgage offered and can reduce loan-to-value ratios, making products such as 95pc mortgages more expensive for homebuyers.
“We are watching the housing market very carefully,” Mr Bailey said. “We’ve laid out the tools that we can use. That is hugely important – that we have set out our desire to see robust mortgage underwriting standards [and that] will be part of the approach. We know sadly from history mortgage underwriting standards are very cyclical.
“The thing I stress is that we will use those tools.”
Although Mr Bailey made it clear there was no evidence yet of a housing bubble, he would not allow a “free-for-all” to develop in the mortgage market as banks use ultra-low interest rates to encourage people to take out loans.
The Royal Institution of Chartered Surveyors predicts average house prices will rise in Britain by 8pc next year and last Thursday the Council for Mortgage Lending revealed that the amount of money lent to borrowers in November rose to £17bn, up by more than 30pc on the same period last year.
The total volume of lending should hit £170bn for the year, still well below the £363bn lent in 2007, the peak of the housing boom.
Mr Bailey said the UK’s banks would face further “stress tests” in the second half of 2014 to ensure capital positions were maintained. He said that he was not a “capital nutter” but that it was important that banks had secure balance sheets.
“Yes, we are going to test the banks,” Mr Bailey said. “But it’s not done with some devious plot to say, ‘we’re going to find the banks out by moving the goal posts’.
“We will get the results and judge accordingly how they look. There isn’t a secret plan.”
Mr Bailey said it could be 2019 before the “too big to fail” controls on banks were agreed. He also said that if banks put forward satisfactory plans on “resolution” – how to allow a bank to collapse without the need for taxpayer support – then capital levels in the future might not need to be as high.
“I think that is a reasonable objective,” Mr Bailey said when asked about a 2019 deadline – the same as the new Basel III rules and the ring-fence proposals in the UK which split investment and retail banking.
“There is a certain consistency to some of those dates, it is five years,” he said. “But there is a lot to do in that period.”
He said it “was depressing” that the banks were still facing significant conduct issues which were a drain on capital because of the billions of pounds of fines being paid.
He added: “Are [banks] continuing to transgress? Well, I hope not.”