BOE Carney Warns of Rising UK House Prices

The Bank of England’s governor has issued a fresh warning on the threat of a UK property bubble, as official figures showed house prices rose by 10.5% in the year to May.

Mark Carney told MPs on the Treasury select committee that rising house prices and high levels of mortgage debt taken on by households remained the “biggest risk” to economic recovery over the medium term.

Outlining in detail why the Bank’s financial policy committee made the decision last month to limit the proportion of high loan to income mortgages granted by lenders, he said that a proliferation of highly indebted households could tip the economy back into recession.

Carney said that as house prices rise, individuals become increasingly overstretched financially in order to afford to buy a house, prompting them to cut spending on other things.

“What we were trying to address was the indirect risk from indebtedness … and the macroeconomic consequences of that. Because history shows British people pay their mortgages, there are very low default rates on mortgages. What happens if households are borrowing at high multiples is they have to economise on everything else in order to pay their mortgages.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza