BOE Is Watching for Signs of Excessive Housing Debt, Taylor Says

Bank of England official Martin Taylor said policy makers are watching for signs that banks or borrowers may become over-extended as the housing market strengthens.

The central bank’s Financial Policy Committee is also monitoring for “signs that borrowers were not in a position to withstand an eventual rise in interest rates, signs in general that a more speculative market might be developing,” he said in a speech today in Wolverhampton, England. “Housing boom and bust and financial stability make uneasy bedfellows.”

Taylor, a member of the FPC, said the panel “has an eye on developments” in the property market. Asking prices for London homes rose an “unsustainable” 10.2 percent in October, Rightmove Plc said in a report today, adding there is no risk of a property bubble outside of the capital.

It isn’t the FPC’s job to contain house-price increases, Taylor said. The Royal Institution of Chartered Surveyors called on the committee last month to limit house-price increases to 5 percent a year.

“If you have an economic recovery, rising numbers of households and very tight supply -- all of which we seem to have at the moment -- it would be surprising if” prices didn’t increase, Taylor said. The addition of low interest rates and the government’s Help to Buy program has created “some vigorous facilitation of demand,” he said.

Taylor said calls for the FPC to tame the housing market demonstrate that people “see the point” of the committee, though he’s also concerned that “expectations both of the scope of our role and of our ability to achieve an outcome are expanding so fast.”

‘Fashionable Backstop’

Taylor, a former adviser at Goldman Sachs Group Inc., was a member of the U.K.’s Independent Commission on Banking. He said the government’s request that the FPC assess Help to Buy annually shows that the panel is “fast becoming the most fashionable backstop in town” though that “probably will not be enough to ensure we are well liked.”

“As we take on responsibility to backstop policies designed by others to pursue their objectives, the balance of our work will shift, away from adjusting the structure of the financial system to make it more resilient and towards monitoring the current situation for emerging risks,” he said.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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