Escalating house prices ‘a risk to UK economy’
- 3rd July 2014
- Business & Economy
Sir Jon Cunliffe has warned that the biggest risk to the UK is the housing market, claiming that rising prices, which are escalating upwards faster than people’s incomes, is a particular cause for concern.
The Bank of England’s deputy governor told BBC Radio 5 Live that such a situation is problematic because it leads to “a big increase in the amount of debt in the economy” and equally, the “amount of debt that mortgage holders have”.
Therefore, if left unchecked, it could create the conditions necessary for a financial crisis to unfold, which would be hugely damaging to the UK and, in turn, the rest of the world.
“Some months ago I thought the biggest risk at that point came from the UK housing market in Britain,” Sir Jon said during his interview.
“And it’s not the risk around house prices as such, it’s the risk that we get a sustained rise in house prices – and this is very important – (the risk of) house prices rising faster than people’s incomes.”
His comments come on the back of measures launched by the Bank of England to prevent a housing bubble from emerging in the UK.
This involves encouraging lenders to check potential homeowners have the finances to manage a three percentage point rise in interest rates and placing a 15 per cent cap on the number of mortgages that can be approved to people who are looking to borrow more than 4.5 times their income.
In related news, Nationwide has just revealed that UK house prices have risen above their peak of 2007, with the value of an average property in London surpassing £400,000 for the first time.
Commenting on the findings, Matthew Pointon, property economist at Capital Economics, told the Guardian that a disparity between supply and demand has resulted in rising prices against the fact that mortgage approvals have fallen.
“While the level of debt may not be accelerating, the amount people are borrowing compared to their incomes is already at record highs,” Mr Pointon said.
“The risk of a damaging house price correction at some point in the next few years is growing.”
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