The Bank of England is to be awarded astonishing new powers in order to control the size of mortgages in the UK in the likelihood of a property bubble of such danger it could seriously threaten the country’s economic recovery.
George Osborne, Chancellor of the Exchequer, announced the new powers during his annual Mansion House speech in London and Mark Carney, governor of the Bank of England, stated that there may well be a rise in interest rates this year as well.
The announcement comes despite certain prominent property experts pointing out that the only region that is in any real danger of a property price bubble is London, but even in the capital, the rocketing price growth is beginning to slow down.
Experts have also highlighted the fact that in some areas of the UK, most notably the North east and Northern Ireland, prices are still yet to recover from the downturn caused by the global recession..
Inflating Interest Rates
Carney had originally stated that an interest rate rise was not to be expected until 2015 at the very least, but he now claims that it is imminent, putting up the cost of mortgages for millions of homeowners across the country and further raising costs for potential first time buyers looking to get on the property market.
“There has already been great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect,” said Carney.
Osborne said that he will attempt to push through the new powers before the general election next year, as he believes that the Bank of England should provide a full range of alternatives to higher interest rates in order to help cool the housing market.
“I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market. I want to protect those who own homes, protect those who aspire to own a home, and protect the millions who suffer when boom turns to bust. So I am giving the Bank new powers over mortgages, including the size of mortgage loans as a share of family incomes or the value of the house,” he explained during his speech.
Up until the new powers were announced, the Bank’s new financial committee has merely held the power to recommend actions to banks and building societies, but as of now it will be able to directly limit the size of a mortgage in relation to the value of a property or the size of a potential buyer’s income.
Both the treasury and the bank believe that there is no imminent risk of a house price bubble, but both are concerned about the potential for the property market to wreak havoc once again with an economy.
“Does the housing market pose an immediate threat to financial stability today? No, it doesn’t. could it in the future? Yes, it could, especially if we don’t learn the lessons of the past. So we act now to insure ourselves against future problems before they can materialise,” finished Osborne.
Bradley Shore is an experienced travel and investment writer, he likes to write about property and investment his most recent work is for Innovo Property. He likes to blog to help build up the knowledge of his readers, you can see this on his twitter page where he often tweets out his articles.