Carney Says BOE Aims to Avoid Boom-Bust Property Market

Bank of England Governor Mark Carney said policy makers must make sure the housing market recovers in a sustainable way as the government accelerates its program to aid homebuyers.

“We will take those responsibilities very deliberately, very prudently and act in a proportionate fashion in a way that is consistent, that intends to be consistent, with a sustainable housing market,” Carney said in an interview with ITV Anglia broadcast yesterday on its website. The BOE has tools to ensure the housing market “isn’t in a boom and then a bust phase.”

Britain’s property market has strengthened in recent months, prompting concerns that the government’s Help to Buy housing plan may fuel a bubble. Data today showed house prices climbed to their highest level in five years last month. While BOE Markets Director Paul Fisher yesterday played down fears, the central bank has said it will be “vigilant” to risks and the Chancellor of the Exchequer George Osborne has requested it carry out an annual review of his program.

“We have a range of tools we could potentially use and we need to use them in the context of other programs,” Carney said. They include an “affordability test, so individuals who are taking out mortgages today will be able to pay it down the road when interest rates eventually rise, as they will eventually as the recovery really takes hold.”

IMF Warning

With the government’s Help to Buy program prompting a warning from the International Monetary Fund that it could over-inflate house prices, Prime Minister David Cameron has defied critics and said the second phase of the program will start now, three months earlier than planned.

House values increased 0.3 percent in September from August, an eighth consecutive gain, mortgage lender Halifax said today. That takes the average house price to its highest level since September 2008, it said.

The Halifax data follows a report from Hometrack Ltd. that showed values rose the most in more than six years in September, and comments from Nationwide Building Society that homebuilding is “well below” the pace needed to keep up with demand.

In the ITV Anglia interview, Carney also said the central bank won’t tighten monetary policy until the U.K. economy is growing at a sustainable rate as he took his message to executives outside London.

“We’re not going to begin to think about raising interest rates or tightening monetary policy until we see the conditions in the economy where the economy is really growing -- and growing at a sustained pace,” he said.

Record Low

BOE policy makers have said they’ll keep their key interest rate at a record low of 0.5 percent at least until the unemployment rate, now at 7.7 percent, drops to 7 percent. Carney is pushing the message to consumers and executives and his tour of East Anglia follows a similar visit to the north of England last week.

Carney said the aim of guidance is “to provide business in this region and across the country with that greater degree of certainty” about monetary policy.

“This recovery, to gain traction, to be sustainable, to really move forward, is going to turn on regions like East Anglia, it’s going to turn on regions outside of London,” he told ITV Anglia. Carney also said an increase in business sentiment should help get businesses “greater confidence to start to hire and invest.”

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