BRITAIN’S resurgent housing market risks becoming a danger to the economy, Bank of England governor Mark Carney warned yesterday as he and the Treasury stopped the cheap funding on offer for mortgages, instead favouring sustained support for small business loans.
Mortgage rates have plunged since the Funding for Lending scheme was launched in August 2012 on worries that central bank support was not reaching borrowers.
But now that house prices are booming, led by London, the Bank of England’s support for mortgages is being withdrawn – its first step back from policies to boost lending.
“Prices are seven per cent higher than a year ago,” Carney said.
“Risks to financial stability may grow if there are further substantial and rapid increases in house prices and a further build-up of household indebtedness. These risks would be amplified if underwriting standards were to weaken.”
Along with City watchdog the Financial Conduct Authority, the Bank also wants mortgage applicants to face tougher affordability tests.
But banks will still get support for lending to small businesses.
“The Funding for Lending Scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households,” said chancellor George Osborne.
“The changes refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”