LONDON: A surge in mortgage approvals, a rise in house prices and higher consumer confidence and business lending added to signs of momentum in Britain’s economic recovery yesterday.
Bank of England Governor Mark Carney said he was ready for the challenge of heading off any risk of a credit bubble, but stuck to his commitment to keep interest rates at rock bottom for years to come.
“Interest rates are principally an instrument of monetary policy for achieving the inflation outcome and there are other tools that address risks,” he told the Daily Mail newspaper.
Figures from building society Nationwide showed house prices rose strongly for a fourth consecutive month in August. A jump in mortgage approvals — July’s figure was the highest since March 2008 — suggests further gains in the pipeline.
“Taken alongside this morning’s news of a further rise in house prices in August, July’s household lending figures are likely to fuel speculation that the housing market is in the early stages of another boom,” said Samuel Toombs at Capital Economics.
Carney said an unsustainable house price boom — the threat of which he played down earlier this week — would be better tackled by targeted measures, which could mean restricting mortgage credit or raising the amount of capital banks must hold to restrain home loans.
But in yesterday’s interview, he acknowledged that, with so many schemes encouraging people to buy homes, an attempt to cool the market would be like swimming against the tide.
The government’s “Help to Buy” scheme, which helps people buy homes with a downpayment of just 5 percent, has been widely criticised by economists who say its biggest impact has been to drive up prices by making the housing market seem a one-way bet.
Heading off problems, Carney said, “would be difficult to achieve if there were a host of government policies or other events that are pushing in the other direction.”
“Help to Buy” is not the only way the government is subsidising the housing industry. The “Funding for Lending Scheme” launched via the Bank of England a year ago has helped lower mortgage costs and increase the availability of loans.