Striking a balance

With Office for National Statistics figures suggesting an 8 per cent annual rise in house prices, the memories of the housing market bubble pre-crisis are so fresh in everyone’s minds that the Bank of England governor and the chief executive of the FCA do not want to go anywhere near there again.

Indeed, the mortgage market review has probably come in just in time. While designed to deal with the consequences of the financial crisis, from which we are only just recovering, it has come into effect just as the housing market is taking off and potentially just a few months before the first rate rise in seven years.

But the BoE has a difficult balancing act – it has to set rates at a level that does not let the economy overheat but does not choke off a nascent recovery before it gets going.

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At the same time, doubt exists over the long-term viability of the Help to Buy scheme. It is designed for those who cannot get on the housing ladder at all, but the sudden injection of new capital appears to have created a problem the other measures were trying to avoid.

The southeast took up 15 per cent of Help to Buy products, making it the keenest region for the scheme, while the northeast only accounts for 5 per cent.

These figures are tempered by the overall proportions by region of property lending. But with the economy forecast to grow at 2.9 per cent, and without much spare capacity, fears of inflation are mounting, and an early move to raise interest rates could head off a potential rise in the cost of goods.

Getting the economy right is a challenge, even for the best brains at the BoE. Let us hope they manage the recovery successfully.