LONDON (Reuters) - Britain’s housing market upturn bears little resemblance to the debt-fuelled booms of the past, Bank of England policymaker Ben Broadbent said on Wednesday, adopting a more relaxed tone on housing risks than some of his peers.
Last week the International Monetary Fund urged Britain to cool its housing market, and figures from mortgage lender Halifax showed house prices rose at the fastest annual rate in more than six years in May.
While accepting that housing was currently the main potential threat to Britain’s financial stability, Broadbent said past periods of strong house price growth were marked by rapid growth of risky mortgage debt. “We are not yet at that stage,” he told British lawmakers who were questioning him about his appointment as the BoE’s next deputy governor for monetary policy.
“I think what is really crucial is the extent of leverage on the back of (high house prices) and that is what, primarily, macroprudential policy is designed to control.”
He added that the BoE’s role was to guard against financial market risks caused by excessive debt, rather than to directly stop house price rises - particularly if they might be driven by fundamental factors.
Broadbent, who already sits on the BoE’s rate-setting Monetary Policy Committee and becomes deputy governor on July 1, said he was not convinced central banks should “lean against” excessive swings in asset prices.
He also said it was not the main job of the Financial Policy Committee (FPC) - which he will join as deputy governor - to identify and end price bubbles in its role overseeing financial stability.
The FPC next meets on June 17 to finalise its half-yearly review of financial risks.
Broadbent’s comments contrast with firmer warnings on the risks of another house price bubble from some of his colleagues, including from BoE Governor Mark Carney, who has warned of rising numbers of high loan-to-income mortgages.
Deputy governor Jon Cunliffe said last month it would be “dangerous” to ignore the momentum that has built up in house prices.
Others are more relaxed. On Monday, MPC member Ian McCafferty said worries about the housing market needed to be kept in perspective, and added that action could be taken if overheating materialises.
That could involve regulating the government’s Help to Buy programme, which widens access to mortgage finance for buyers unable to pay large deposits.
Asked on the chances that the FPC would recommend curbing Help to Buy, Broadbent said: “I think it’s a very small part of the story, quite honestly, and I think that view is reinforced by the data on the distribution geographically.”
Broadbent also said the high level of indebtedness in British households is one reason why interest rates will rise at a gradual pace.
“Clearly, that (debate) is going to be more sensitive than it was in the past because debt levels are higher,” he said.
The level of slack in Britain’s economy is another key question for policymakers deciding when to hike rates from their record low 0.5 percent. Broadbent put spare capacity at around 1 percent, at the bottom end of the BoE’s estimate, made in May, of 1-1.5 percent.
Economists polled by Reuters expect the BoE will wait until the second quarter of next year before hiking interest rates, although they expect the first MPC member to vote for a rate rise by August.
Editing by Hugh Lawson