Bank of England cuts mortgage support to avoid housing bubble

Thu Nov 28, 2013 12:54pm EST
 
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By David Milliken and Huw Jones

LONDON (Reuters) - The Bank of England moved to head off the risk of a housing bubble in Britain on Thursday, making a surprise announcement that it would put the brakes on a scheme launched last year to help boost mortgage lending.

The central bank said the Funding for Lending Scheme (FLS) would cease to offer banks incentives for mortgage lending and instead be refocused on helping small firms to borrow. The news caused shares in house-building firms to tumble.

Britain's economy and its housing market have staged an unexpectedly strong turnaround since the FLS was launched by the BoE and finance ministry in July 2012 in an effort to spur the long-delayed recovery by unblocking credit markets.

"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," BoE Governor Mark Carney said.

Another - much-criticized - government program to aid the housing market, Help to Buy, remains in place.

British house prices have risen by almost 7 percent over the past 12 months - their fastest growth in more than three years - sparking concern about the risk of a future bubble as well as rising living costs at a time of stagnant wages.

London prices have surged even more, partly on the back of foreign demand, and finance minister George Osborne is widely expected to introduce a capital gains tax on foreign-owned property in a half-yearly budget update next week.

"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 said, adding that the BoE could take further steps to rein in house prices if needed.   Continued...

 
Flowers bloom outside the Bank of England in the City of London September 19, 2013. REUTERS/Suzanne Plunkett