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Home > News and Reports > Bank of England poised to take action to stem housing price bubble
Dec 5, 2018
Bank of England poised to take action to stem housing price bubble

In a recent surprise announcement that the Funding for Lending Scheme will no longer be applied to mortgage lending, the Bank of England demonstrated it is ready to take action to curb an impending UK housing bubble.

According to the central bank, the Funding for Lending Scheme, or FLS, will no longer try to spur the housing market by providing banks with incentives for issuing mortgages. Instead, the Bank of England said it will refocus its efforts toward helping small businesses secure funding.

Since the Finance Ministry and the BoE launched the FLS in July 2012 in an effort to spur the lingering recovery by opening up credit markets, the UK economy and housing market has witnessed a strong turnaround.

“Given the access to credit for households now, it would no longer be appropriate or necessary for us to have our foot on the accelerator. It’s better to shift into neutral,” said BoE Governor Mark Carney.

In a recent statement to reporters in London, Carney said, “This will help keep the housing market on a sustainable path and ensure the broader economy continues to receive the stimulus it needs, for as long as it needs, to sustain the recovery. By acting now in a gradual fashion, authorities are reducing the likelihood that larger interventions will be needed later.”

UK property prices have increased by nearly seven per cent in the past 12 months, which marks the fastest growth rate in the past three years, raising concerns of a future bubble and rising living costs during a time when wages have stagnated.

Home prices in London have soared even higher, and many expect finance minister George Osborne to announce a new capital gains tax later this week in an effort to curb the recent tide of foreign investment.

Rob Wood, a former BoE official and a current economist at London’s Berenberg Bank, stated, “These are the first baby steps on the booming housing market. Mark Carney has shown a willingness to act quickly on an issue. It’s likely to be the first of several steps on the housing market over the next year or two.”

“We did not see an immediate threat coming from the housing market but we are concerned about the prospective evolution of the housing market,” Carney added.

Despite this recent turn of events, the controversial Help to Buy Scheme remains in place, at least for the time being.

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