Financial News

  • 9 June 2014, 10:23

IMF Sees Housing Market Threat To Recovery

The International Monetary Fund's annual report on the UK economy has warned of threats to the recovery from soaring house prices and risky mortgages.

The report - outlined at a news conference by the fund's managing director Christine Lagarde - touched on the potential for a housing bubble andrecommended the Bank of England clamp down on high-debt mortgages in a "targeted and timely" manner.

The findings were seen as piling pressure on Bank governor Mark Carney ahead ofits latest report on financial stability due later this month while Sky's Economics Editor Ed Conway said the warnings flagged a big risk to the Chancellor GeorgeOsborne's legacy.

The IMF said: "House price inflation is particularly high in London, and is becoming more widespread.

"So far, there are few of the typical signs of a credit-led bubble. Nonetheless, a steady increase in the size of new mortgages compared with borrower incomes suggests that households are gradually becoming more vulnerable to income and interest rate shocks.

"Limits on the proportion of high Loan-To-Income (LTI) mortgages any lender can issue would help to contain directly the currently most pressing risks to financial stability".

The report also suggested the controversialHelp to Buy schemes, offering mortgage guarantees and loans for those struggling to find adeposit, may need to be cancelled early.

In his reply to the findings, Mr Osbornesaid the Bank of England's Financial Policy Committee had the tools it needed to tackle risks.

The IMF's economic health check also provided a boost to the Chancellor, as it abandoned criticism of his austerity measures and said his plans to strengthen public finances would not "put an undue drag on growth".

"The economy hasrebounded strongly and growth is becoming more balanced.Growth has accelerated since the second half of 2013, and leading indicatorssuggest that the recovery has momentum", the report stated.

Ms Lagardetold reporters at the Treasury briefing that the news coming out of the UK recently had been "pretty much all good".

But she added: "We have recommended that somemacro-prudential measures be considered by the UK authorities and that this bedone with a view to addressing not so much house prices but financial risk.

"We also believe it should be done in a gradual, flexible way because theauthorities need to assess whether those measures work, how they work.

"Clearly it is something that needs to be watched and depending oncircumstances, on pricing levels, those macro-prudential measures should befurther activated if necessary."

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