UK house price inflation threatening borrowers: IMF

The global watchdog singled out house-price inflation in London – up 17 per cent in a year – and said Help to Buy must be addressed as the number of lower-income borrowers obtaining high loan-to-income mortgage credit continues to grow.

The report touched on the potential for a housing bubble and recommended that the Bank of England clamp down on high LTV mortgages in a “targeted and timely” manner.

The IMF acknowledged Help to Buy had enabled lower-income households to get on the property ladder but suggested it be modified or reconsidered.

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Mark Littlewood, director general of the Institute of Economic Affairs, said the IMF was right to identify the housing market as a key structural problem.

He said: “However, it is irresponsible to stoke demand for housing when land-use planning fundamentally restricts the new supply we so desperately need.

“If the government fails to fundamentally liberalise planning restraints, they risk destroying the dreams of those who want to afford to own their homes, driving up the cost of living, and choking off growth in the most successful parts of the UK.”

Adviser View

Jason Witcombe, director of London-based Evolve Financial Planning, said: “At some point interest rates have to go up – and just a small increase will hurt many borrowers. If we believe the political jargon, that there is a cost of living crisis, there will be an even bigger crisis as, for many people, mortgage payments are their biggest expense and they will struggle to balance the books. The bigger the LTV mortgage, the bigger the chance people will fall into negative equity.”