Carney in warning to homeowners
Homeowners must sort themselves out to pay their mortgages if interest rates rise because they will not be guaranteed a helping hand, Bank of England governor Mark Carney has warned.
He urged would-be homeowners to think of "the debts you are taking on" and being able to repay a 25 year or 30 year mortgage rather than relying on the value of the house price increasing.
He told the Guardian: "Are you going to be able to service that mortgage five years from now, 10 years from now, if interest rates are higher?
"Or are you counting, even subconsciously, on the price of your house keeping going up and if something happens an ability to sell it quickly and not facing the consequences of not being able to pay?"
Against the market background where there is strong demand among would-be buyers to get on the property ladder, Mr Carney noted his concern about the lack of new homes being built.
It is hoped that strategic decisions made now to try to control mortgage lending will avoid the need for severe and drastic policy actions to be taken if there is a boom-bust in the property market.
Mortgage approvals are running at levels not seen since Northern Rock was nationalised in February 2008.
The newly-appointed Canadian governor told the Guardian: "The right way to do policy - to protect against the boom and bust cycles - is to act early in a graduated, proportionate way and that reduces the probability of having to act in a bigger way later."
In light of the Bank's Financial Policy Committee (FPC) to end Funding for Lending for home loans a year earlier than planned, he said: "I'm less concerned about the housing market, given the steps the FPC has taken."
The project, which was introduced in August 2012, offers lenders cheap money in return for loans to customers. It is to be limited to business lending from 2014.
To try to use interest rates as a way of cooling down the housing market would be a "very blunt tool" as it could hurt recession-hit sectors of the economy which are starting to make a comeback, he argued.
Mr Carney suggested this could have the potential to be a blow to a wide-ranging swathe of the economy spanning from the south to the north, across manufacturing and exporters through to small and medium-sized companies and people who are trying to borrow to secure their homes.
He also called for "prudence" from lenders. The Bank could also keep a watchful eye on the situation, he suggested, and try to head off a housing bubble by calling on regulators and lenders to cap the size of a mortgage compared to the value of the house - the so-called loan-to-value (LTV) ratio.