Mark Carney, the Governor of the Bank of England, speaking on Sunday Morning’s Andrew Marr show said that London house prices were being driven out of the Bank’s control by cash rich foreign investors.
This has been discussed many times on Property118, but is the first time Mark Carney has directly raised it as a issue to quell fears that raising interest rates would be considered as an option to dampen this micro climate boom.
Mr Carney said, “the top end of London is driven by cash buyers. It’s driven in many cases by foreign buyers. We as the central bank can’t influence that. We change underwriting standards it doesn’t matter, there’s not a mortgage. We change interest rates it doesn’t matter, there’s not a mortgage, etc. But we watch the knock-on effect.”
Outside London the housing market has still not yet fully recovered from the Credit Crunch post 2008 and he went on to say. “What we’ve seen in the housing market is an adjustment from very low levels. So if you look at the level of transactions how many houses are purchased, how many mortgages are struck they dropped by more than 50 per cent from the average before the crisis. They’ve now bounced back, but they’re still more than 25 per cent below historic averages”
“But we have to be very conscious of the economic history in Britain, and there is a history of boom and subsequent bust in the housing market. That’s one of the reasons why the Bank of England has been given additional powers and one of the reasons as of last November we started to use those powers. So we’ve tightened up on underwriting standards, we’ve tightened up on capital standards, we’ve taken away special stimulus programmes that existed before.”
Mark Carney also defended the Government’s Help to Buy scheme, by saying its effect on the demand for property without increasing supply was “pretty small”.
This is why I think it is good for these sort of decisions to be taken out of the political sphere to avoid knee jerk reactions driven by ill considered popular demand.