Bank of England's Mark Carney warns on housing market

Mark Carney Bank of England chief Mark Carney says the housing market has the potential to wreck the recovery

The governor of the Bank of England has given his strongest warning yet about the dangers to Britain's economy posed by the booming housing market.

Mark Carney said the market represented the "biggest risk" to financial stability and the long-term recovery.

He added there were deep structural problems which needed to be addressed.

He told Sky News the fundamental problem was a shortage of homes - and the Bank of England had no solution to that.

In an interview on the Murnaghan show, he said the Bank was "closely watching" rising property prices and the subsequent increase in large-value mortgages, which he warned could lead to a "debt overhang" which could destabilise the economy.

'Making progress'

Start Quote

There are not sufficient houses built in the UK”

End Quote Mark Carney

Mr Carney said: "When we look at domestic risk, the biggest risk to financial stability and therefore to the durability of the expansion [of the economy]; those risks centre in the housing market."

He added: "There are not sufficient houses built in the UK. To go back to Canada, there are half as many people in Canada as in the UK, twice as many houses are built every year in Canada as in the UK and we can't influence that."

Official government figures show the country began work on 133,650 homes in the year to March, a rise of 31% on the year before.

A former government advisory body has said the UK needs to build almost 300,000 homes a year until 2031 to meet current demand.

Prime Minister David Cameron, who was also interviewed by Murnaghan, admitted the government needed to build more houses and said Mr Carney was "absolutely right".

He said: "The building of houses is going up. If you talk to any housing developer at the moment, or builder, they will tell you that the Help to Buy scheme... has been hugely helpful in bringing forward more development or house building."

The deputy prime minister, Nick Clegg, echoed that point. He told the BBC's Andrew Marr: "The big long-term problem is that we simply do not build enough homes in this country."

But Mr Clegg also said the government should scale back its Help to Buy scheme, if the Bank concluded the housing market was overheating.

Mr Carney said he was watching the housing market closely, and would tell the chancellor if he believed changes needed to be made: "We could limit amounts of certain types of mortgages that banks could undertake, we could provide advice. The chancellor has asked us if we would provide advice on changing the terms of Help to Buy."


Mr Carney said the Bank had an important role behind the scenes: "What we can influence is whether the banks are strong enough.

"Do they have enough capital against risks in the housing market, whether underwriting standards are tough enough so that people can get mortgages if they can afford them?

"And by reinforcing both of those we can reduce the risks that come from a housing market that has deep, deep structural problems."

Housing analyst Henry Pryor said the Bank was also acting to ensure people did not borrow more than they could afford: "What they are doing is bringing in these new regulations [which include a series of tougher questions about ability to repay] to make it much harder, much tougher, for those of us who need a mortgage in order to buy a house, to actually qualify for one.

"And it's tricks like that, it's little wrinkles like that, that the Bank of England are going to use in order to try and dampen down over-enthusiasm in the housing market."

Major lenders calculate house prices are rising at roughly 10% a year - the highest since the credit crisis of 2008.

The interactive content on this page requires JavaScript

UK house prices

Year on year % change


The average UK house price is around £180,000.

'Reduce dividends'

Start Quote

It's a balance that Mark Carney's got to walk and that's why he says it's such a big threat”

End Quote David Blanchflower Ex-Monetary Policy Committee member

The governor's warning comes amid a rising a chorus of concern.

Sir Jon Cunliffe, one of the Bank of England's deputy governors, previously said it would be "dangerous to ignore the momentum that has built up in the housing market".

The region where prices are rising fastest - at double the national average - is London and the South East.

But Mr Carney said that situation was beyond his control - and was not a threat to the rest of the country: "There is a large cash market in London, a particularly foreign aspect to it. From our perspective they don't cause risk to the British economy."


More on This Story

The BBC is not responsible for the content of external Internet sites


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 725.

    There is an obsession with house prices but the fact is throughout the 20th century prices ran at about 10 times average salary

    The reason that didn't really matter is that wages increased so quickly that 10 years later that mortgage they beggared themselves to pay originally is then easily affordable

    Boom of globalization that caused that is over, we're just back to where we were before

  • rate this

    Comment number 701.

    For those, including Clegg, pointing the finger at the "Help to Buy" scheme, I'd like to point out that there are an awful lot of people out there still struggling to buy. No, the help to buy scheme is not the problem. The problem is that house prices have been inflated, primarily, by people buying property for investment but also by greedy estate agents, cashing in on the end of the lean years.

  • rate this

    Comment number 697.

    All subsidies and attempts to fiddle the market should be stopped. Allow the market to reach is natural level. Market forces left alone will sort things out.

  • rate this

    Comment number 690.

    One way to alleviate the housing problem is to start discouraging property speculation which is rampant in Great Britain. Other big economic countries in the EU have long recognised that this ruinous to the economy and have combated this by implementing special rules/laws. Why can't Britain do the same ?

  • rate this

    Comment number 689.

    For decade & more all the economic growth has ended up in housing. Once upon a time that growth was shared out a bit by decent interest rates, so everyone shared in growth a bit. For a couple of decades, and in extreme now, all benefits go to the rich house buyer. They use poor people's cash savings for next to nothing. Then keep all the growth to themselves. It's not rocket science get rates up.


Comments 5 of 34


More Business stories


Business Live

    07:32: Premier League TV review
    Premier League logo on a football

    Back in 2010 Ofcom ordered Sky to offer its sports channels to rivals at a price set by the regulator. It is now reviewing whether that has helped competition and "remains appropriate". Ofcom has launched a consultation on its view that the current division of Premier League and Champions League football between Sky and BT harms competition between pay TV retailers. There will be a second phase of the review in 2015.

    07:20: North Sea oil crisis Radio 5 live
    North Sea oil platform

    It's extremely difficult to tell if the North Sea oil business is heading into the same kind of crisis that it saw in 1986, says Aberdeen businessman Charles Skene on Radio 5 live. Kenny Anderson the boss of an Aberdeen construction firm remembers the "strife" caused in 1986 when oil fell to $36 per barrel. But predicting oil prices is an "impossible game" he points out.

    07:10: Samsung shareholder payout

    Samsung Electronics is considering increasing its dividend payout this year by between 30% and 50% compared to 2013.

    06:56: Nigerian currency crisis BBC Radio 4

    Phillip Walker of the Economist Intelligence Unit, tells Today the crisis facing Nigeria is far bigger than the one facing Russia. Nigeria's currency the naira has fallen 15% against the US dollar this year forcing the country's central bank to impose foreign currency trading controls. "Nigeria has a bigger population than Russia, its economy relies on oil exports more than Russia, so it's a big problem," Mr Walker says.

    06:48: Gas prices BBC Radio 4

    Professor Green says energy suppliers have an eye on politics at the moment. He says Labour leader Ed Miliband's promise to freeze energy prices for 20 months if his party wins next year's election may mean suppliers will keep prices artificially high despite currently benefitting from lower gas costs.

    06:34: Gas prices BBC Radio 4

    While falling oil prices have recently caught the attention of many, the cost of gas has also been coming down. That's because demand in Europe has been falling due to a relatively warm winter so far. Richard Green professor of sustainable energy business at Imperial College London tells Today we shouldn't expect lower energy bills are a result. That's because energy suppliers are selling us gas they bought at last year's prices.

    06:32: Asian markets

    Asian stock markets have had a mixed session. They Nikkei 225 is up more than 2%. Hong Kong's Hang Seng is up 1.4%. Shares in Shanghai have fallen back after hitting a four-year high in early trading. The Shanghai composite is down 0.1%.

    06:21: China recalculates growth
    Chinese flag

    China's economy is bigger than originally thought. The government has revised up the size of the economy in 2013 by 3.4% to 58.8 trillion yuan ($9.5 trillion). The increase was mainly accounted for by a greater contribution from the services sector. In comparison, the US economy was worth almost $17 trillion in 2013.

    06:14: IAG bid for Aer Lingus Radio 5 live
    Dublin Airport

    British Airways owner, IAG is "good at integrating new airlines" says Richard Hunter, head of equities at Hargreaves Lansdown. He is explaining why IAG made a bid for Aer Lingus. The Irish airline is attractive because it has lots of landing slots at Heathrow, says Mr Hunter. IAG may also have a bit more spending power because of the lower oil price, he adds.

    06:06: North Sea oil jobs Radio 5 live
    Oil worker

    North Sea oil companies are cutting wages, rather than jobs at the moment, says Alan Savage chairman of recruitment company Orion Group on Radio 5 live. For agency workers wages have already been cut by up to 20%. He says that the British oil industry is highly taxed and the "government has a lot to answer for".

    06:02: Russian crisis Radio 5 live
    Russian President, Vladimir Putin

    Next year is going to be grim for the Russian economy, says Craig Botham, emerging markets economist at Schroders on Radio 5 live. The economy is likely to contract 4.5%, inflation is forecast to be betweem 11% and 12%. The rouble could keep on weakening, "it's hard to see a particular floor for the currency" Mr Botham says.

    05:59: Ben Morris Business Reporter

    Do get in touch. Email or tweet @bbcbusiness.

    05:59: Matthew West Business Reporter

    Morning folks. The news the US Federal Reserve is in no hurry to raise interest rates boosted shares on Wall Street and in Asia to new highs. Meanwhile the Bank of Japan maintained its commitment to government bond buying at its last meeting of the year. And we'll be keeping an eye on the Russia rouble and oil price again today and there may be more on IAG's bid for Aer Lingus. Stay with us.



BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.