Charlie Bean, deputy governor for Monetary Policy at the Bank of England, has said that he thinks we are "still some way off seeing an unsustainable house-price boom" despite "increasingly noisy commentary" to that effect.
The third override condition, delegated to the Bank’s Financial Policy Committee, relates to whether the monetary policy stance is resulting in the build-up of dangerous financial stability risks. If the FPC cannot contain these risks using the range of recommendations and powers at its disposal, then it will alert the MPC, who will then decide whether an increase in Bank Rate is called for. Increasingly noisy commentary that a new housing bubble is brewing – and concerns that the second stage of the Help to Buy scheme will add fuel to the fire – may mean that this condition becomes material.
I do not have time left today to do justice to this issue. But it is important to remember that mortgage approvals for house purchase are still running at a little over half their pre-crisis average and, outside London, house price inflation is still quite modest. So we appear to be still some way off seeing an unsustainable house-price boom on the back of excessive credit growth. That said, neither the MPC nor the FPC can afford to be complacent.
Bean is probably right that we're not in bubble territory. But it's scarier to think that these dramatic house price rises are permanent rather than temporary. While planning rules remain tight and the government artificially boosts demand, prices will likely continue their ascent. Nowhere is that more obvious than London.