The Bank of England said on today there was no immediate danger of a property bubble in Britain but that it was keeping a watchful eye out.
It also said it wanted more study on how vulnerable hedge funds that rely on borrowing would be to future interest rate rises.
"In view of that, the Committee judged that it should closely monitor developments in the housing market and banks' underwriting standards," it said in a statement after its September 18 meeting. "The Committee would be vigilant to potential emerging vulnerabilities."
If any action was needed, it would be "proportionate to the risks and consistent with a graduated response."
House prices in Britain as a whole rose 3.3pc in the 12 months to July but jumped nearly 10pc in London, official data showed last week.
This has triggered some concern that BoE and government lending incentives are creating a housing bubble.
Stephen Lewis, chief economist at Monument Securities said the FPC - which is tasked with spotting risks to the economy from the financial system - was right to hold off for now. "It's probably the right thing at the moment. There is a lot of uncertainty at present about the housing market."
The housing recovery has been helped by government and Bank measures to free up mortgage lending. A new phase of the government's Help to Buy programme is to be launched in January.
Governor Mark Carney and finance minister George Osborne have shown no concern about the prospect of a housing price bubble, pointing to levels of activity in the property market that are below their pre-crisis peak.
But earlier this month, a group representing British property surveyors called on the Bank to take measures to slow mortgage lending if national house price growth exceeds 5pc a year.
Ed Miliband, leader of Britain's Labour opposition party, said this week that if he wins election in 2015 he would more than double the number of new homes built annually to 200,000 by 2020 to ease a shortage that has helped to push up prices.
FOCUS ON HEDGE FUNDS
In June, the BoE ordered
an investigation into the vulnerability of Britain's financial
institutions and borrowers to higher interest rates when central banks
around the world start to wean their economies off massive stimulus.
The
FPC said in its statement on Wednesday that a moderate rise in
long-term interest rates did not pose an immediate threat to major banks
and insurance companies and so far "had not led to dislocations in
market functioning or significant impact on financial institutions."
However,
levels of leverage within hedge funds, which could make them vulnerable
to a sharp rise in borrowing costs, "needed to be looked at more
closely," the statement said.
The Financial Conduct
Authority, which is represented on FPC, said it asked a number of hedge
funds during the summer about their preparedness for changes in interest
rates following the June FPC meeting and as part of routine supervisory
work.
The FPC's wider review of rate hikes would
continue by looking at what impact "more significant stresses" would
have and how any impact would ripple through the financial system.
The FPC said it will publish on October 1 a discussion paper on the design of a new framework for stress testing banks.
Article Source: http://www.independent.ie/business/bank-of-england-is-watching-for-signs-of-uk-property-bubble-29609879.html
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