Housing fears rise even as risk of crash recedes


BRITISH economy has the lowest risk of a crash than at any time since at least 2008, but house prices are increasingly concerning financial institutions, according to the Bank of England.

In the Bank’s latest systemic risk survey, released yesterday, 46 per cent of respondents said that the likelihood of a high-impact event in the short term had dropped, as opposed to just six per cent who thought it has increased. The proportion is at its lowest since the survey began in 2008.

When asked to identify the key risks to the UK financial system, property prices were named by 40 per cent of the financial institutions replying to the survey.

While other risks were judged to be more notable by the respondents, the risk seen from a potential drop in property prices has climbed. In the second half of 2012, only 14 per cent of respondents said that the issue was a key risk.

Nationwide’s most recent index of house prices suggest that the average residential property in the UK is now back at nominal record levels, hitting £186,512 after growing by 11.1 per cent in the year to May.

However, this risk is judged to be below a general economic downturn, geopolitical risk, and equal to sovereign risk, which has been plummeting since its 2012 peak.

When asked to name just a the single biggest risk to the financial system, property prices dropped from fourth to fifth place. Following the Russian annexation of Crimea, geopolitical concerns climbed significantly during the last six months, overtaking concerns about a frothy housing market.

There is also some suggestion that forward guidance has cooled concerns about interest rate hikes. The proportion of those surveyed saying that the low rate environment was a key risk had surged, from nine per cent at the end of 2012 to 43 per cent at the end of 2013. It has now dropped back again, to 39 per cent.