Bank sees no dangerous bubble now


Bank of England governor Mark Carney tells Robert Peston he wants to stop a "mass of people moving into riskier mortgages"

So apparently a rise in London house prices of circa 20% per annum is not a serious bubble, according to the Bank of England.

It has announced modest constraints on banks' ability to make riskier loans. But it is highly unlikely that these will have any significant impact on the health of the housing market in any part of the UK, including the booming markets in London and the South East.

The Bank's Financial Policy Committee - created by the current government in 2010 to help prevent a repetition of the 2007-8 financial debacle - is making two proposals to limit the future growth of mortgages that are a high multiple of household incomes.

But these recommendations, if implemented this second, would have no material impact on the behaviour of banks - and are in effect an insurance policy to prevent banks becoming much more reckless in coming years.

'Rising trend'

The most eye-catching plan is to limit the proportion of new mortgages that are 4.5 times income or greater to no more than 15% of any bank's total mortgages.

Which may sound like a significant constraint on banks' commercial freedoms.

But it is unlikely that any of the big banks has ever in the history of banking supplied such a high proportion of high loan-to-income mortgages over any extended period.

Over the last 12 months, no bank has gone over the 15% threshold. And the average for all banks over the past year has been 11%.

That said, high loan-to-income mortgages are a bigger share of the total than their historical norms and are on a rising trend.

The Bank of England would expect banks to hit this threshold by 2017, based on its forecasts for earnings and house prices.

Or to put it another way, this policy is designed to limit the dangerous risks it expects banks to be taking in three years time.

The Bank of England's other recommendation is that banks should check that new borrowers could afford their mortgages if interest rates were to rise by 3% over the subsequent five years.

This is a marginally tougher affordability test than banks currently use, but does not seem materially or economically significant.


Mark Carney reacted with apparent amusement after Robert Peston asked if the Chancellor was being "irrational and hysterical"

Perhaps more eye-catching than the Bank's announcements is the adjustment being made by the Treasury to its Help to Buy subsidised mortgage scheme.

It says mortgages of 4.5 times household income or more will no longer qualify for the scheme.

The Treasury says this makes good the chancellor's promise in his Mansion House speech to adjust the Help to Buy Scheme in line with the Bank's mortgage-market proposals.

But surely the chancellor is going further than the Bank of England, in that the Bank is limiting these high loan-to-income mortgages to 15% of new mortgages - whereas the Treasury is going for zero tolerance of them.

I asked the governor whether the chancellor had gone a bit overboard.

Mark Carney said he welcomed the Treasury's action. But then he winked.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 91.

    I think we are moving from a home owning nation towards a letting nations with uber Landlords, much like the German model where home ownership is not so common with families renting all their lives. Buy to let drives the market now, apart from the very rich buying up property.

  • rate this

    Comment number 90.

    "Bank sees no dangerous bubble now"
    They never do, they see profits

    Don't bother listening to Banks..

    Food Clothing + Shelter is required for everyone as basic requirement

  • rate this

    Comment number 89.

    The primary causes of the 'bubble', which exists mainly in London and the SE, are foreign investors buying prime London and 'off plan' all over (causing a 'ripple' effect, constraining supply, and setting new 'bench marks' for valuations) and B2L, powered by ZIRP. House price bubbles ultimately hurt the economy, and always pop. The Tories know this but hope voters don't realise until after 2015.

  • rate this

    Comment number 88.


    ...Which begs the question why aren't those that supply the good (house-builders) now cashing in like crazy which would assist the market to adjust and for them to increase their profits?
    I'm scratching my head too. Maybe they're making enough not to need to increase supply, what with profits up 48%, see

  • rate this

    Comment number 87.

    @62 Parallel
    Not arguing; just noting that we have had 6 housekeepers in 11 years; each one left & bought in London. Young couples, no kids, two full ISA pots. Seems not to be a problem.
    My point is that HYS seems full of native-born Brits who can’t seem to cope, but my staff & ex-housekeepers seem to be fine in London. They save, invest & thrive & yet many here say they can’t.

    Odd, isn’t it?

  • rate this

    Comment number 86.

    We need to get rid of the culture where your home is an investment. Your home is where you live and that's all it should ever be.

  • rate this

    Comment number 85.

    Is it just me or does the low salary to high mortgage level, and the government guaranteeing unsecured deposits to boost house prices sound a lot like what Northern Rock et al were doing a few years before they collapsed? I'm sure it's so very different this time! How is it going to end well?

  • rate this

    Comment number 84.

    "a return to the old council house system is the only real answer"

    What do you mean a return? Will over 20% of housing stock in UK is not prvately owned. Councils do no have the money, nor shoudl they fund and expnasion of hosuign stock. The private scetor can fill the gap but only if the shackles of supply of land & tight regulation/planning law and reduced.

  • rate this

    Comment number 83.

    Read this very carefully: Bank sees no dangerous bubble now.
    That's right, no DANGEROUS bubble now.
    Not no bubble.
    When is a bubble not a dangerous bubble?
    I think therefore "no dangerous bubble" is all they dare say in public.

  • rate this

    Comment number 82.

    #76 BTL is simply not the demon you paint it to be. BTL has simply replaced council housing which has declined over the last 20 years.

    Actual share of housing stock owned rather than rented has declined from 69% (2001) to 64% (2013) which is about the same level as in 1979

  • rate this

    Comment number 81.

    much more radical action is needed in the south to reduce house prices to a more sensible and affordable level that they were at about 15 years ago. Only cash buyers/investors are making money out of other people's misery of high unaffordable housing and high mortgages. It's not just London!

  • rate this

    Comment number 80.

    Sit back and do nothing: Strange when we have a situation where the supply of a good (houses) is limited with high demand and as a consequence the market acts as it should, the price of the good rises. Which begs the question why aren't those that supply the good (house-builders) now cashing in like crazy which would assist the market to adjust and for them to increase their profits?

  • rate this

    Comment number 79.

    Carney's just realised how much he can make selling his house when his term ends ...

    ... and decided to reclassify this 20% surge as Not A Bubble

  • rate this

    Comment number 78.


    Tories? The wild west of lending was 2002/07 with unlimited adverse BTL's. Crazy.

    It was Gordon Browns "light touch of regulation" and Bill Clinton allowing US banks to mix domestic lending with "Casino Banking.

    No Tories.

  • rate this

    Comment number 77.

    A few posters have already pointed out, that a return to the old council house system is the only real answer .But that takes long term policies, which modern politicians are not capable of.
    They really are a shower. only interested in themselves and not the people they represent. We used to have a Labour party who supported the working man and woman. Alas, no more , just talking selfish heads.

  • rate this

    Comment number 76.

    I find it staggering that Carney and Osborne have not even hinted at the incredible damage that BTL mortgages (and those BTL-ers that are now so 'in' with their bank that they can buy as many houses as they like) are doing to the housing market, and the massive bubble that they're causing. BTL is heavily-leveraged property investment and how we got into this mess in the first place - wake up guys.

  • rate this

    Comment number 75.

    I wonder what would have happened if the Bank of England 3% test had ben applied when the banks were spending money they didn't have back in 2007? Same old rubbish -screw the hard working-and who employed the new governor?-of course the Tories (you know the party that SAYs its for the poor and hard working)

  • rate this

    Comment number 74.

    "..banks should check that new borrowers could afford their mortgages if interest rates were to rise by 3% over the subsequent five years."

    Banks should be instructed to reduce the term of mortgages. The monthly repayment can then be equivalent to a mortgage rate when base rates are at 3-4%. Capital is paid off quicker which gives a buffer when rates do rise.

  • rate this

    Comment number 73.

    The Tories are supposed to be the party of free markets yet we've seen multiple examples of intervention to manipulate the housing market. How do they explain that?

    Forget King/Carney/BoE etc. etc., they just do as they're told.

    The independent BoE is a con and an illusion.

  • rate this

    Comment number 72.

    How to look as though you're doing something while in fact you're doing nothing at all. Plus :

    "..banks should check that new borrowers could afford their mortgages if interest rates were to rise by 3% over the subsequent five years."

    At last we have a number but is that the increase in base rates or the borrower's interest rate ? And why 5 years, aren't mortgages 20 yrs plus ?


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