A new housing bubble? Watch it, Bank is told

A new housing bubble? Watch it, Bank is told

The Chancellor and Bank of England have been warned of the dangers of re-creating the same boom conditions that led to the last financial meltdown.

The warning, from Chitraj Channa, an economist with the Centre for Economics and Business Research, followed data the Bank of England showing that 60,624 new mortgages were approved in July, up from 58,238 in June and 30% more than the number of new mortgages approved in July 2012.
Channa said that the second part of the Help to Buy scheme, launching in January, which will be available for the purchase of existing properties as well as new-builds, will trigger more housing market activity and mortgage lending.

He said: “This increased activity is not without its risks, however. Recent increases in house prices coupled with the Bank of England’s commitment to record low interest rates at least until the unemployment rate falls to below 7% has raised concerns that current monetary policy could fuel another housing bubble. 

“In his first speech as governor of the Bank of England, Mark Carney recognised this threat. He stated that the central bank was ‘acutely aware of the risk of unsustainable credit and house price growth and will be monitoring it closely’. However, he also noted mortgage approvals and transactions were running at substantially below their pre-crisis levels.
“Overall, the recent loosening of credit conditions is good news for growth in the UK. Robust improvement in the housing market could help support a broader recovery in the UK's economy. Nonetheless, the Bank of England will have to keep a close eye on the growing credit supply to ensure that we do not recreate the very conditions that caused the financial crisis in the first place.”

Meanwhile, the Council of Mortgage Lenders – whose monthly mortgage figures appear at odds with those of the Bank of England – has pointed out that the Bank includes buy-to-let mortgages in its figures, whereas the CML does not.

The CML is now planning to start publishing figures on buy-to-let lending as from this month.

Meanwhile, the CML says that first-time buyers are making a comeback.

It says the level of first-time buyer lending in London is at its highest since 2007, while in Wales it is also at its highest since 2007, and in Scotland at its highest since 2008. In Northern Ireland, first-time buyer numbers are up by one third on a year ago and are the highest since 2009.

In London, in the second quarter of this year, there were 11,200 loans advanced to first-time buyers, up 38% on the same period last year, and greater than the number of mortgages lent to home movers at 8,900.

In Wales there were 2,700 first-time buyer loans, compared with 3,400 loans to home movers. In Scotland there were 6,500 first-time buyer mortgages, compared with 8,100 loans to home movers.

In Northern Ireland there were 1,500 first-time buyer loans, and 1,000 home-move mortgages.