Industry adds to pressure on Bank over housing market

A survey of financial services sector leaders has added to the pressure on the Bank of England to act over the housing market, as the number of respondents citing risks related to house price inflation grew for the third successive study.

The bi-annual poll, which gathered the views of 72 hedge funds, banks, building societies, asset managers and insurer and was conducted between 7 April and 12 May, found 40 per cent were concerned at the risks related to a sharp fall in inflated property prices.

While not the primary risk identified, this was the third survey in succession in which concern related to the property market has grown, and puts this in third place behind a general fear of a revival in the economic downturn and geopolitical risk in the midst of the ongoing Ukraine crisis.

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Also on 40 per cent and ranking equal third, concerns around sovereign risk have dropped sharply from the 73 per cent that cited this last time around.

The concerns will increase pressure on the Bank of England to act to curb house price inflation, after it had earlier said it would step in if the Mortgage Market Review failed to halt inflation.

Early indications were not positive on the MMR’s ability to constrain house price growth, as data published last week showed continued acceleration for th 13th consecutive month in May despite the introduction of the new affordability rules and a further fall in mortgage approvals.

Attention has focused on high income multiple loans, which governor Mark Carney singled out for attention in a recent television interview and which the IMF referenced in a warning on housing market risks on Friday.

Lloyds and Royal Bank of Scotland, both backed by the UK government, have already acted to curb high income multiples in London, where price inflation is highest, by imposing a cap of four times earnings for homes worth more than £500,000.

The survey conducted by the Bank of England found confidence in the UK financial system on average has risen, but only slightly.

A quarter (24 per cent) of financial services leaders surveyed were completely confident or very confident in the stability of the UK financial system as a whole over the next three years, while 69 per cent fairly confident.

There has, however, been a slight increase in respondents who were not very confident, which was up three percentage points to 7 per cent.

In addition to the risks mentioned above, others respondents highlighted include those arising from the low interest rate environment (cited by 39 per cent of respondents), risks around regulation/taxes (down 6 percentage points to 35 per cent) and operational risk (up 4 percentage points to 29 per cent).

Outside of the top seven risks, household/corporate credit risk, UK political risk and risks surrounding monetary and fiscal policy have grown in prominence.