Deputy Prime Minister Nick Clegg said the U.K. is “nowhere near” a house-price bubble and the Bank of England has tools to prevent one, amid growing concerns that government support for homebuying is stoking another boom.
If there’s another bubble, the Bank of England and the government “have means by which we can anticipate that and make sure it doesn’t happen again,” Clegg told BBC Television’s “Andrew Marr Show” yesterday. Britain is “nowhere near yet the peak of that unsustainable housing bubble,” he said.
The central bank’s Financial Policy Committee holds its quarterly meeting on Sept. 18 to scrutinize potential financial-stability concerns, less than a week after lawmakers questioned Governor Mark Carney on the risk of an unsustainable housing-market boom. Chancellor of the Exchequer George Osborne’s Help to Buy program, which helps boost deposits for homebuyers, has drawn warnings from the International Monetary Fund and Business Secretary Vince Cable for potentially driving up prices.
“We need to be vigilant and of course we’re going to be vigilant,” said Clegg, who is attending his Liberal Democrat party’s annual conference in Glasgow, Scotland. “We’ve started the painstaking job of building more houses. The great crisis in housing in Britain for years is we simply don’t build enough new houses and we don’t build enough affordable houses.”
Help to Buy is designed to let cash-strapped buyers purchase a home with a deposit of as little as 5 percent. The first phase -- interest-free loans for buyers of newly built homes -- began in April and has already stoked the strongest housing market since the financial crisis. Guarantees meant to spur 130 billion pounds ($206 billion) of mortgage lending will be available for all homes starting in January.
Liberal Democrat President Tim Farron also criticized the program in a speech to party members in Glasgow on Sept. 14 that attacked policies advocated by Osborne and other ministers from their Conservative coalition partners.
“Only the complacent would think that we’re out of the woods, and there’s some who seem content to steer us straight back into those woods,” he said. “We still face the danger of a re-inflating housing market, unsustainable growth fed by cheap credit and real growth thwarted for want of skills.”
Clegg said yesterday that “mortgage approvals are about half of what there were at the peak.” While “there are parts of the housing market particularly in London and central London that are booming,” that isn’t the case in other parts of the country, he said.
His words were echoed by another senior Liberal Democrat minister, Chief Secretary to the Treasury Danny Alexander, who told Sky News television yesterday that “we’re a thousand miles away from a housing bubble in the U.K.”
Recent property-market data have suggested prices are increasing. A report by Acadametrics on Sept. 13 showed that U.K. house prices rose to a record last month. In London, prices have risen 40 percent from their trough in April 2009, compared with 16 percent nationally, the report, compiled with LSL Property Services Plc showed, while eight of the 10 regions tracked recorded price gains.
The opposition Labour Party’s business spokesman, Chuka Umunna, said current government policy such as Help to Buy ignores the need to reconfigure the economy.
“Much of the solution to powering the recovery in the eyes of George Osborne lies in sorting out the housing market, but the problem is we are at grave risk of there being another housing bubble,” he told the BBC yesterday. “We know that we also need to rebalance our economy so that we don’t just rely on consumption and, say, property prices, but we grow our productive sectors -- manufacturing for example -- and also that we grow our exports as well.”
Carney told lawmakers on Sept. 12 that while the market is improving, activity levels, mortgage applications and valuations are still low. He also said prices will continue to increase, and the Financial Policy Committee will be “vigilant.”
The FPC will release a statement on its deliberations on Sept. 26.
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