Financial stability watchdog alert to risk posed by UK housing bubble - Il

Financial stability watchdog alert to risk posed by UK housing bubble

Da Financial Time di giovedì 26 settembre 2013.
By Claire Jones, Economics Reporter
The UK’s financial stability watchdog has said it will remain “vigilant” to the threat posed by a housing bubble, but that the housing market recovery does not yet pose a threat to financial stability.
In a statement on its September 18 meeting, published on Wednesday, the Bank of England’s Financial Policy Committee said activity in the market and loan-to-value ratios on loan-to-value ratios on new mortgage lending remained below their historic averages.
The committee also flagged that households’ debt servicing costs were low and the ratio of house prices to earnings was at its level of a decade ago.
Despite this, the watchdog, chaired by BoE governor Mark Carney, said it would “closely monitor” developments in the market and banks’ underwriting standards and be “vigilant to potential emerging vulnerabilities”.
If a housing bubble did emerge it could be addressed by measures such as supervisory guidance on underwriting standards, sectoral capital requirements and recommendations to the regulators on tightening of affordability tests, the FPC said.
Fears of a bubble have grown in recent months as government initiatives such as chancellor George Osborne’s Help to Buy scheme have revived confidence in the UK housing market.
Data out last week showed the average UK house price has now surpassed its 2008 peak, though the average has been skewed by the property market in London, which has seen an influx of cash from Asia.
The watchdog said the rise in global interest rates in recent months on the back of the Federal Reserve’s mooting of the tapering of its bond buying “underlined the importance of financial institutions, and their regulators, ensuring that they were not overly exposed to a sharp correction in market interest rates or credit spreads.”
So far, however, the rise in rates had not stopped markets functioning nor had it had any significant impact on financial institutions.
Some rise in borrowing costs in the UK did not pose an immediate threat to big banks and insurance companies, though in time it could if debt levels rose and some intermediaries were affected by higher credit spreads.
The Prudential Regulation Authority, the UK’s banking supervisor, would talk to banks about how these risks could be amplified. The levels of leverage within hedge funds and their vulnerability needed to be looked at more closely by the Financial Conduct Authority.


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