UK pound climbs on BoE’s housing measures

Sterling has firmed up its gains today to trade above the 1.7 mark against the dollar again as the Bank of England governor Mark Carney talks about the need to rein in the growth in UK house prices.

The pound climbed up above the 1.7 mark before Mr Carney started presenting the Bank’s Financial Stability Report – in which he unveiled some measures to curb the frothy property market – and consolidated those gains and added to them once investors started digesting the news.

On the day sterling is now up 0.3 per cent to $1.7031, making it the third best performing major currency in the world today.

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The BoE’s Financial Policy Committee said: “The FPC does not believe that household indebtedness poses an immediate threat to stability. But it has agreed that it is prudent to insure against the risk of a market loosening in underwriting standards and a further significant rise in the number of highly indebted households.”

Of those measures the FT’s Chris Giles and Sam Fleming wrote: “Two new restrictions were introduced by the BoE. The first, recommended by the International Monetary Fund, puts a limit on the proportion of mortgages a bank can lend with large loans relative to mortgagors’ incomes.

“The limit was set to restrict lending at income multiples above 4.5 to no more than 15 per cent of a bank’s new lending for residential home purchases. At present, no bank exceeds this limit and the average level of lending above a 4.5 loan-to-income ratio is only around 11 per cent, so it is not binding on any lending, even in the London housing market.”

Although these measures have little direct impact on markets, investors have taken them as another sign that the BoE is likely to lift rates soon - perhaps even later this year.