MF tells Britain to rein in UK house prices

Last week it was the EU telling the UK what to do to avoid a housing bubble – now it is the International Monetary Fund.
In its annual report on the UK economy, which has been broadly welcomed by the coalition government, it says the country’s recovery is at risk from soaring house prices and mortgage lending.

“House price inflation is particularly high in London, and is becoming more widespread” is the clearest warning in the report.

IMF managing director Christine Lagarde admits there are few signs of a credit-led bubble but she warns that “a steady increase in the size of new mortgages compared with borrower incomes suggests that households are gradually becoming more vulnerable to income and interest rate shocks.”

To counteract that, the Fund says the government should put a limit on the proportion of high loan-to-income mortgages which lenders could issue.

The report also suggests that Help to Buy, offering mortgage guarantees and loans for those struggling to find a deposit, may need to be stopped before the end of their predicted terms – 2016 for the equity loan part and 2017 for the guarantee element.

Lagarde admits HTB allows “creditworthy lower-income households to purchase homes, especially outside London and the south-east” and that it helps provide cheaper credit for lower income borrowers, but she warns that any “significant increase” in take-up would bring wider economic risks.