Carney: 'House Prices Biggest Risk To Economy'

By Ed Conway, Economics Editor

The British housing market has "deep, deep" problems, according to the Governor of the Bank of England.

In an interview with Sky's Murnaghan show to be broadcast in full later this morning, Mark Carney warns that rising house prices represents the biggest current risk to the economy.

And the number of large mortgages being approved to house buyers is on the rise, he adds.

Mr Carney says that the UK is in need of new house building.

He says that compared to his home country of Canada, for example, the UK built half the number of new homes every year despite having twice the population. 

Canada builds around 200,000 new homes a year compared to just 133,000 similar properties that were built in the UK last year.

Mr Carney said: "The issue around the housing market in the UK … is there are not sufficient (numbers of) houses (being) built."

Mark Carney has issued a warning over the UK housing market

Asked if more houses need to be built, Mr Carney replied: "That would help us out.

"We're not going to build a single house at the Bank of England. We can't influence that.

"What we can influence … is whether the banks are strong enough. Do they have enough capital against risk in the housing market?"

Mr Carney said they could also check lending procedures "so people can get mortgages if they can afford them but they won't if they can't".

"By reinforcing both of those we can reduce the risk that comes from a housing market that has deep, deep structural problems," he added.

Mr Carney said there was evidence that large mortgages, where lenders approve loans of more than four times people's salaries, are on the rise again.

"We don't want to build up another big debt overhang that is going to hurt individuals and is very much going to slow the economy in the medium term," he said.

"We'd be concerned if there was a rapid increase in high loan-to-value mortgages across the banks. We've seen that creeping up and it's something we're watching closely."

In an separate interview for Murnaghan David Cameron admitted the Government needed to build more houses and said Mr Carney was "absolutely right".

However, he added: "The building of houses is going up. If you talk to any housing developer at the moment or builder they will tell you that the help to buy scheme the Government has put in place has been hugely helpful in bringing forward more development or house building.

"We are training apprentices in the building trade to make sure that we can deliver on these houses but we do need more, yes."

Last week, Mr Carney surprised many by playing down the chances of an imminent rise in interest rates despite fears of a growing house price bubble.

But he admitted the issue was the biggest current threat to the economy.

"The biggest risk to financial stability, and therefore to the durability of the expansion, centres on the housing market and that's why we're focused on that," he said.

Prices are currently rising at more than 10% a year across the country.

Analysis by Sky News has shown the number of £1m properties has doubled since 2008.

Earlier this month, the OECD think tank called on the Bank of England to impose measures to help quell rising house prices.

Both the coalition and Labour are committed to building hundreds of thousands of new homes.

However, construction still lags behind Government targets.

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