Bank of England governor Mark Carney says he is “fully prepared to deploy” new tools such as lending restrictions and increased capital requirements on mortgages in the event a housing bubble begins to emerge.
Before the crisis the Bank’s Financial Policy Committee only had powers to raise concerns about financial stability, but no tools to act on those risks. But under the regulatory restructure which set up the Financial Conduct Authority and the Prudential Regulation Authority, the FPC was given a raft of new tools to act on any risks it finds.
Speaking at business leaders event in Nottingham today, Carney said: “The Bank of England is now in a position, for example, to supervise lending to specific sectors more intensively, to make recommendations to banks and building societies to restrict the terms on which new credit is provided, or even to raise capital requirements on mortgages or other types of lending.
“Having these tools in our tool kit – and if necessary using them – will help us keep interest rates low to secure the recovery without creating risks that make the recovery ultimately unsustainable.
“We are now fully prepared to deploy them if that were needed.”
Carney noted that mortgage approvals are up 20 per cent and house prices have risen by an average of 5 per cent in the last year.
He said: “Mortgage approvals are currently running at only a little more than half of pre-crisis levels,and transactions are at a little more than two-thirds… Nevertheless, the Bank of England is acutely aware of the risk of unsustainable credit and house price growth and will be monitoring it closely.”
Earlier this month, Treasury select committee member Mark Garnier told Fundweb sister title Money Marketing that if Help to Buy encourages a housing bubble, it would be for the Bank to act to deal with it. But critics of the scheme suggested intervention over one of the Chancellor’s flagship schemes from the UK’s financial stability watchdog would be an embarrassment.
Business Secretary Vince Cable, former Bank governor Mervyn King and the industry have all raised concerns the extension of Help to Buy could help to inflate a housing bubble because it does not link access to the scheme to building new homes.