BoE deputy governor warns of house price risk
Bank of England deputy governor Sir Jon Cunliffe has said the housing market poses the "biggest risk" to the UK economy.In an interview with BBC Radio Five Live, Sir John said house prices rising faster than people's incomes pose a particular threat. "That leads to... a big increase in the amount of debt in the economy," he added."And it's not the risk around house prices as such, it's the risk that we get a sustained rise in house prices - and this is very important - [the risk of] house prices rising faster than people's incomes."The Bank of England (BoE) recently introduced new measures designed to prevent a buildup of mortgage debt occurring.New tests are to be introduced to ensure borrowers are able to cope with a three percentage point rise in interest rates from the date their mortgage is taken out.From October, mortgages issued at more than 4.5 times a borrower's income will be limited to 15 per cent of lenders' total loans.BoE governor Mark Carney said he did not expect the measures to have a significant impact on current lending practices, as many institutions already conduct the tests and only around ten per cent of loans are issued with a loan to income ratio above 4.5.This week, Nationwide revealed house prices had passed their pre-recession peak, rising by one per cent during June. This takes the annual pace of growth from 11.1 per cent to 11.8 per cent.For the first time, the average price of a house in London rose above the £400,000 mark - prices in the capital are now 30 per cent higher than their pre-crisis levels.Sir John joins a number of other high-profile figures and institutions warning of the threat posed to the economic recovery by the housing market.Last month, the International Monetary Fund warned that house prices could threaten the recovery, while business secretary Vince Cable and Mr Carney have also voiced their concerns.
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