Business World

Friday 27 April 2018

Bank of England moves to curb housing bubble

Bank of England Governor Mark Carney delivers this year's half yearly Financial Stability Report.
Bank of England Governor Mark Carney delivers this year's half yearly Financial Stability Report.

David Milliken and Huw Jones

The Bank of England moved to head off the risk of a bubble in British house prices yesterday, making a surprise announcement that it would put the brakes on a scheme launched last year to boost mortgage lending.

Shares in British construction firms tumbled after the central bank said it would refocus the Funding for Lending Scheme (FLS) on helping small firms that find it hard to borrow.

Britain's economy and its housing market have staged an unexpectedly strong turnaround since FLS was launched by the bank and finance ministry in July 2012 to spur lending to home-buyers and businesses.

THREAT

Another, much-criticised, government programme to aid the housing market, Help to Buy, remains in place.

"We did not see an immediate threat coming from the housing market but we are concerned about the prospective evolution of the housing market," BoE governor Mark Carney said.

"The concern is where this could go. We definitely see some short-term momentum," he said, adding the bank was prepared to take "larger measures" to tame rising house prices if needed.

Mr Carney said it would "no longer be appropriate or necessary to have our foot on the accelerator" in terms of spurring mortgage lending. "It's better to shift into neutral."

Sterling rose after the announcement, while construction firms lost more than £1bn in value. Barratt Developments, Britain's biggest housebuilder by volume, saw its shares slump by as much as 9.6pc.

British house prices are likely to rise nearly 6pc in 2014 on top of a similar increase this year, according to a Reuters poll of economists published earlier this week.

James Knightley, an economist with ING, said the shift in policy was not a precursor to an interest rate hike by the bank, which has kept borrowing costs at a record low since 2009.

"Such measures have been undertaken elsewhere, and there the sense is that by taking such action it can actually limit the need for direct monetary policy tightening," Mr Knightley said. (Reuters)

Irish Independent

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