Despite the new stricter rules that have recently come into play regarding UK mortgage applications, the housing market is still in danger of destabilising the UK economy.
That is the opinion of the Bank of England governor, Mr Mark Carney, who was interviewed by Sky News on Sunday 18th May. He made it clear the Bank was willing to get involved in the housing market if borrowers look to take on more mortgage debt than they can manage. Interest rates are still at historic lows and there is every chance they will start to rise in the near future. The main concern is that when they do, they could result in significant problems for those who have not allowed for such an increase in their mortgage payments each month.
Rising house prices
House prices have been buoyant recently, especially in London and the South East. Recent figures have proven prices have increased by around 10% in the last 12 months, making properties harder for many people to buy.
However despite the increase in average prices and the new measures in place to make mortgages much more challenging to be accepted for, it appears the Bank of England is still watching closely.
More affordability tests?
One of the things Mr Carney mentioned in the interview was the possibility of bringing in more tests concerning the issue of affording mortgages in the first place. In many cases people could easily afford a mortgage when the interest rates are low. However if those rates increase – as they eventually will do – monthly mortgage payments will become more challenging to meet. The main aim seems to be to make sure people do not take on more debt than they can reasonably afford to pay back.
Focusing on the loan to value mortgage aspect
Loan to value refers to the size of your mortgage in relation to the value of your property. The higher the loan and the less you pay in terms of a deposit, the more likely it is that the value of the property could drop below the amount you owe on it. This is negative equity.
It is also the area the Bank of England seems most concerned about. Mr Carney said they were “watching closely” and would definitely take action if these high loan to value mortgages started to rise considerably. No one wants to be stuck with a mortgage that is worth more than their property is worth. However this could be in the future if the slight increase seen in these properties keeps on creeping up as it has been recently.
The interview Mr Carney gave clearly laid out the current position of the Bank of England. They are keeping a close eye on the state of the housing market and the mortgages being granted, further pointing out that there is a big discrepancy between the number of homes required and the quantity being built. It seems the housing market has a few hurdles to jump yet to be in a healthy condition.