The Bank of England has appeared to rule out intervention to cool London’s runaway housing market and escalating signs of inflation nationwide, saying policy was ‘not the right tool’.
Speaking at the launch of the Bank of England’s Inflation Report, BoE governor Mark Carney said the Bank’s financial policy committee would monitor affordability and debt overhangs, however.
Sterling dropped 0.5% against the dollar following the unusually dovish report, which will go some way to pushing back rate expectations.
Despite annual house price growth breaking into double digits for the first time in four years this month, with the Nationwide index up 10.9%, the Inflation Report downplayed inflationary pressure.
‘Activity in the housing market picked up by less than expected at the time of the February Report,’ it said with mortgage approvals averaging 70,000 a month, 10,000 below forecast.
‘Approvals are likely to rise over the rest of the year but to a lower level than expected three months ago. A growing share of recent mortgage contracts has been attributable to borrowers with loan to value ratios above 90%, though this proportion remains below pre-crisis levels.
‘New lending at high loan to income ratios has surpassed pre-crisis levels, particularly for high-value properties, including those in London. With growth in the stock of lending remaining subdued, however, the debt to income ratio of households in aggregate has continued to edge lower.’
It added that the current historic low in interest rates mean that repayment requirements remained a relatively low percentage of household income.
The report toned down recent warnings by the BoE’s deputy governor for financial stability Jon Cunliffe who said it would be ‘dangerous to ignore’ the momentum of house prices.
That followed testimony by BoE officials Spencer Dale and Andrew Haldane to Parliament in which they cited the housing market as a source of risk for the UK economy.