Mark Carney steps in to cool house prices

Jun 26, 2014

Bank of England governor Mark Carney announces caps on high-risk mortgage lending


Mark Carney has stepped in to cap mortgages and restrain the housing market amid concerns that house price rises could derail Britain's economic recovery.

The Governor of the Bank of England introduced a raft of new measures to limit riskier mortgages and "prevent a build-up of consumer debt", Bloomberg reports.

Under the new rules, loans of 4.5 times the borrower's income or more will be limited to no more than 15 per cent of a bank's mortgage book. Currently 11 per cent of loans exceed that earnings multiple, more than at any time in history, The Times says.

Carney told reporters that the mortgage caps would help cement the country's economic recovery. "With recovery in the UK gaining momentum, the Bank of England is now focused on turning that recovery in to a durable expansion," he said.

Britain has a long legacy of indebtedness that "if left unchecked could undermine that durability", he said. "The biggest risks relate to the housing market."

But Carney insisted that the new measures would not harm individuals' chances of getting on to the housing ladder.
"These actions will have a minimal impact in the future if – and it's an important if – if the housing market evolves in line with the Bank's central view," Carney said.

"The 15 per cent cap... could quickly become relevant if house prices grow more than we expect, if incomes grow less rapidly than we expect, or if underwriting standards slip."

The BBC's economics editor Robert Peston said that such "modest constraints" will have little effect. "It is highly unlikely that these will have any significant impact on the health of the housing market in any part of the UK, including the booming markets in London and the South East," Peston said.

Rather, Peston concluded, the changes seem to be " an insurance policy" to prevent banks from becoming "much more reckless" in the years ahead.

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