Bank of England Governor Mark Carney has warned that the booming UK housing market is the “biggest risk” to the country’s economic recovery. This is because the number of approved large mortgages is increasing, stoking fears of large amounts of debts piling up.
However, Carney said there was not much the bank can do to address the structural weaknesses in the housing sector, where demand far outstrips supply, reported the Guardian.
In an interview with Sky News, Carney said the Bank of England is keenly monitoring local lenders to ensure that they had sufficient amount of capital to help them weather the risks involved. The bank is also reviewing lending processes to ensure that only individuals who can afford the mortgages are granted them.
“By reinforcing both of those we can reduce the risk that comes from a housing market that has deep, deep structural problems,” he said.
Despite this, Carney added that evidence showed that large value mortgages-which means mortgages exceeding four times the person’s salary- were surging once more, fuelling concerns that they may negatively affect the economy.
“The biggest risk to financial stability, and therefore to the durability of the expansion – those risks centre in the housing market and that’s why we are focused on that,” he said.”We don’t want to build up another big debt overhang that is going to hurt individuals and is very much going to slow the economy in the medium term. We would be concerned if there were a rapid increase in high loan to value mortgages across the banks … we’ve seen that creeping up and it’s something we’re watching closely”. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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