London house price bubble 'threatens UK economy'
The IMF has warned the UK that London house prices threaten to undermine Britain's recovery
The International Monetary Fund has warned the British government that rising house prices could lead to a new surge in household debt that would threaten the economic recovery.
This risk is such that "policy action is warranted" to cool the housing market, according to the IMF's annual report on the health of the British economy. It went on to recommend tighter regulation of mortgages that would increase the cost of lending for banks and make it harder for homebuyers to borrow more than they could afford.
Several banks have already introduced limits of four-times earnings on larger mortgages.
Further evidence of Britain's two-speed housing market emerged yesterday with official figures revealing that London house prices are now 25 per cent higher than they were at their pre-credit crunch peak.
The Office for National Statistics put the price increase down to "rising employment, the increasing availability of mortgage finance, a return of consumer confidence and the release of pent-up demand", The Times reports. Foreign demand has also helped to stoke London house prices.
Prices in many areas outside the capital are still below their pre-crisis peak, but London's boom has lifted the national average to its highest ever level.
Earlier this week, Nationwide building society reported a 13th straight month of rising house prices, breaking through the previous peak recorded before the financial crisis hit. The average price of a home in the UK is now £186,512.
Nationwide's chief economist Robert Gardner, said it is "too early" to say that the housing market has taken a turn towards a cooling trend.
He said: "With mortgage rates close to all-time lows and labour market conditions continuing to improve, underlying demand for homes is likely to remain strong."
On Tuesday the European Commission urged the UK to introduce new taxes on high-value homes and modify the Help to Buy scheme introduced last year to make it easier for people to get onto the housing market.
Some critics have argued that the scheme has contributed to the swift climb in house prices and therefore hindered first time buyers, especially in the capital.
In today's report, the IMF praised Help to Buy, but said it may need to be revised or cut short if the flow of lending "increased significantly." ·