It’s not our job to control house prices, says Bank of England
06-30-2014
By Simon Watkins, Financial Mail On Sunday
In charge: Bank of England boss Mark Carney
The Bank of England cannot stop house prices rising and it should not attempt to do so, according to its most senior executive in charge of financial stability.
Speaking to The Mail on Sunday after the publication of the Bank’s latest measures against excessive mortgage lending, executive director Spencer Dale said: ‘It is not our job to control house prices, nor can we control house prices. They will be determined by the underlying conditions of the market.’
Dale’s comments came after the Bank was accused by critics of ‘pulling its punches’ with its latest policies to stem excessive lending. The Bank itself admitted that the new measures would have only a ‘minimal’ effect on the market.
Last week, the Bank’s Financial Policy Committee announced new guidelines which could limit the ability of banks to lend in the future.
The rules require that high loan-to-value mortgages – where the homebuyer is borrowing 4.5 or more times their income – should account for no more than 15 per cent of a bank’s total mortgage lending.
They also require banks to ensure that all new borrowers would be able to cope with a 3 per cent rise in interest rates over the subsequent five years.
The new rules for lending represent a dramatic shift for Britain, which has been free of mortgage controls for 30 years. But leading banks are currently all acting comfortably within these limits.
Despite fears of a bubble in some parts of the housing market, the Bank said it expected prices to rise by a further 20 per cent by 2017. Dale said the aim of the policy was not to stop prices rising, but to prevent households from becoming too indebted.
‘Your readers have house insurance,’ he said. ‘They should think of the measures we have taken as insurance for the country’s housing market.
‘When people come to judge the success of this policy in, say, two years’ time, do not judge us on what has happened to house prices, judge on whether we have controlled the levels of household indebtedness.’
He said the new mortgage rules would allow the MPC to set interest rates to suit the pace of the economic recovery and ‘not be distracted’ by the housing market.
Dale, a former member of the Bank’s Monetary Policy Committee, has been tipped as a future deputy governor.