Bank of England's Mark Carney highlights housing market's risk to UK economy

Bank of England governor Mark Carney says he is concerned about the buildup of another 'big debt overhang'. Photograph: Lefteris Pitarakis/PA

Bank of England's Mark Carney highlights housing market's risk to UK economy

UK housing market has 'deep, deep structural problems', says governor, and there is little the Bank can do

Press Association

theguardian.com, Sunday 18 May 2014 / http://www.theguardian.com/business/2014/may/17/bank-governor-housing-market-economic-recovery

Britain's booming housing market represents the "biggest risk" to the economic recovery, Bank of England governor Mark Carney has warned.

With approvals for large mortgages on the increase, Carney expressed concern about the dangers of another "big debt overhang" building up.

In an interview with Sky News's Murnaghan, to be shown on Sunday, he said the Bank was monitoring the situation closely.

But he said there was little they could do about the "deep, deep structural problems" in the housing market, with demand for homes outstripping supply.

Carney surprised some analysts last week when he played down the prospects of an early rise in interest rates – despite the fears of a housing market bubble.

In his interview – according to advance extracts released ahead of the programme – he said the Bank of England was watching to ensure the banks had enough capital to withstand the risks involved.

They were also checking lending procedures to try to ensure that mortgages were only issued to people who could afford 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.

Nevertheless, he said that there was evidence that large value mortgages – with loans of more than four times a borrower's salary – were on the rise again, with the risk that they could destabilise 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.

Ultimately, he said, the real problem lay in the shortage of homes – with the UK building half the number of new homes that were being built in his native Canada, despite a much bigger population.

"The issues around the housing market in the UK … is there are not sufficient houses built in the UK," he said.

"[There are] half as many people in Canada as in the UK, [but] twice as many houses are built in Canada every year than in UK."

Housing minister Kris Hopkins said: "In 2010 we inherited a broken housing market, but our efforts to fix it are working. We've scrapped the failed top-down planning system, built over 170,000 affordable homes, and released more surplus brownfield sites for new housing.

"We've also helped homebuyers get on the housing ladder, because if people can buy homes, builders will build them.

"Housebuilding is now at its highest level since 2007 and climbing. Last year councils gave permission for almost 200,000 new homes under the locally-led planning system, and more than 1,000 communities have swiftly taken up neighbourhood planning. It's clear evidence the government's long-term economic plan is working."