Bank warns of housing crash
06/05/2014
The Bank of England has warned house prices in the UK could soon crash as prices continue to increase.
The warning has come amid reports that the UK’s most expensive flat ever has been sold for £140m.
Sir Jon Cunliffe, a Deputy Governor at the Bank of England warned that a momentum of rising house prices could be met with a “sharp correction”. He said that one of the causes of this would be “negative equity and an overhang of debt” still being a major problem for many households.
House prices growing at fastest rate for 7 years
According to Nationwide Building Society, house prices have increased by 10.9% over the last 12 months, the fastest rate of increase for 7 years.
This led to Sir Jon Cunliffe suggesting the Bank’s Financial Policy Committee (FPC) will have to recommend action in order to stem rising house prices.
He said: "Whether and how to act further if, following the pause of the last couple of months, momentum continues to build, will be the most challenging judgement the FPC will have to take in the coming months."
Mortgage Market Review
The ‘Mortgage Market Review’ which is a set of rules aimed at controlling responsible lending in the mortgage market was introduced recently.
The rules mean that a mortgage applicants finances will have to undergo a strict ‘stress test’ before any application can be accepted. The test will ensure that they will still be able to afford their mortgage repayments under changing circumstances, such as an increase in interest rates.
It is hoped that the rule changes will help to constrain house prices, however Sir Jon commented that the rules “have not yet been tested”.
The Bank could consider other options to help control house prices, such as limiting borrowing ratios or forcing banks to hold more capital as security against loans.
Need advice?
Are you planning to apply for a mortgage but are worried about the new rules or your ability to afford one? Contact one of our financial advisers by asking a question online or calling 0800 092 1245.
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