U.K. Chancellor of the Exchequer George Osborne should be clearer about what he expects the Bank of England’s Financial Policy Committee to do to address potential risks in the housing market, lawmakers said.
The government should “state what indicators it believes are most important in detecting any wider economic risks arising from the housing market,” the cross-party Treasury Committee said in a report published today. The Chancellor should also explain “whether he expects the FPC to interpret its remit in a way that might prompt it to take further action as a consequence.”
The report comes after the Organization for Economic Cooperation and Development warned this week of potential overheating in the property market and BOE Deputy Governor Jon Cunliffe said it was “dangerous” to ignore its momentum. Surging home values driven by London have sparked concern that government incentives and record-low interest rates are fueling an unsustainable boom.
“The FPC and the bank’s legitimacy can only be enhanced by a wider public understanding of their powers and decisions,” Treasury Committee Chairman Andrew Tyrie said in the statement. “Housing bubbles are easy to spot in retrospect. The FPC has been given the challenging role of identifying them in advance.”
U.K. house prices rose to a record last month, boosted by purchases by first-time buyers and buy-to-let landlords as a shortage of property for sale supported values, Acadata said.
Prices in England and Wales rose 7.3 percent in April from a year earlier, the most in 3 1/2 years, to 263,113 pounds ($446,200), the real-estate researcher and LSL Property Services Plc (LSL) said in a report in London today. From the previous month, prices jumped 0.5 percent.
“Constrained supply in the capital has already moderated total London sales over the past 12 months,” said Richard Sexton, director of e.surv chartered surveyors, part of LSL Property Services. “Demand shows no sign of slowing. More house building is imperative to keep the momentum going, and to ensure that price rises are sustainable.”
Osborne has rejected criticism that his Help to Buy program, which is designed to allow people with small down payments to get onto the property ladder, has fueled house-price growth, arguing that it has mainly assisted lower-income buyers outside London to buy their first home. Meanwhile, the Bank of England’s decision to keep the benchmark rate at 0.5 percent yesterday suggests policy makers will use other tools to curb house-price growth.
The Treasury Committee said as the government is responsible for fiscal and policy tools that directly influence the housing market, it should “state what indicators it believes are most important in detecting any wider economic risks arising from the housing market” and “set out how it plans to address these risks should they arise.”
The 10-member FPC holds its next meeting on June 17 and will publish its recommendations the following week. After its March meeting, the committee said a tool to toughen affordability tests of borrowers will be available as soon as June. It’s already withdrawn mortgage incentives in the credit-boosting Funding for Lending Scheme and said it will take further “proportionate” action if needed.
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