Weekly Report

The UK’s semi-annual Financial Stability Report highlighted the risks behind UK’s high level of mortgages and announced measures to temper the boom on the housing market. In his speech on 26 June, Carney insisted that “without policy action, the risk of excessive household indebtedness is material”. The set of macro-prudential measures to cool down the housing market includes minimum down-payments and maximum debt limits for insured mortgages. In this respect BoE’s FPC

recommend to cap the proportion of mortgages at 4.5 times the income and no more than 15% of lenders’ new home loans. The borrowers who have failed to repay their debts should be declined. Seemingly, these measures announced by Carney have been light enough to trigger a fresh wave of GBP demand. “If we were to put in place something that was restriction at three times, we would restrict more than half the mortgages that are currently being underwritten” said Carney in a television interview post-FPC. “That would not just slow the housing market, it would reverse the housing market, it would have implications for the recovery and it would do too much in our judgment” he said. On a side note, we highlight that, although the BoE doesn’t see the housing debt as immediate risk to financial stability (perhaps not to create useless panic in the markets), Britons hold 1.28 trillion pound debt on their houses, which roughly equals 76% of the nation’s GDP. You be the judge.