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