‘Some edge coming off’ housing market in UK

LONDON — The “edge is coming off” the United Kingdom housing market and that may start to affect the wider economy by the end of the year, said Bank of England (BoE) deputy governor Ben Broadbent.

Although near-term growth indicators are quite strong, central bank officials predict some softening in economic expansion, Mr Broadbent said in his first interview since taking over the running of monetary policy. The size of Britain’s household debts supports the case for gradual and limited rate increases, but not the argument for leaving the benchmark interest rate at 0.5 per cent, he said.

The comments underscore the challenges the BoE faces as it balances the risk of stoking inflation, by increasing borrowing costs too late, against the need to secure Britain’s economic recovery. The housing market, a focus of policymakers’ thinking in the past month, has turned out weaker than the BoE forecast, he said.

“It’s clear that we have already had something of a dip even relative to the central expectations that we had six months ago at the beginning of the year,” said Mr Broadbent, who began his new job on July 1. “You can see, certainly in quantity and some of the near-term price indicators, some of the edge is coming off.”

As the London housing boom spread across the country, financial stability officials took action last month to prevent people taking on high loan-to-income mortgages they might struggle to afford should interest rates increase.

UK household indebtedness, at about 140 per cent of gross disposable income, remains higher than the United States, Germany, France and Japan. UK household debt climbed to a record £1.45 trillion (S$3.05 trillion) last month.

BoE’s steps, along with the introduction of tougher affordability checks in April, may already be having an effect. Lenders approved almost 10 per cent fewer mortgages in the second quarter than the first and mutual financial institution Nationwide Building Society said yesterday that house prices grew 0.1 per cent this month from the previous month, the slowest pace since April last year. BLOOMBERG