By Ana Nicolaci da Costa
LONDON, July 3 Rapidly rising house prices are a
problem that has spread beyond London, and the risk they pose to
the economy grows greater the more they outpace
mortgage-holders' incomes, a Bank of England policymaker said on
London house prices are nearly 26 percent higher than a year
earlier - the biggest annual jump since 1987 - and those in the
country as a whole were up by almost 12 percent, Nationwide
figures showed on Wednesday.
Jon Cunliffe, the BoE's deputy governor for financial
stability, told the BBC the central bank cannot control house
prices - rising in part due to a shortage of supply - but can
try to prevent them from exacerbating household indebtedness.
"As house prices go up ... faster than the amount of money
people earn, the only way people can buy is to take on mortgages
at higher and higher rates compared to what they earn and then
debt in the economy goes up and that leaves the economy quite
vulnerable to shocks," he said.
"...What we must try and do is to stop that pressure on
house prices leading to higher mortgages relative to what people
Average British wages are currently growing by less than 2
percent a year. The Bank of England expects this growth rate to
rise to just 2.5 percent for 2014 as a whole.
The BoE said last week that no more than 15 percent of new
mortgages could be to people seeking to borrow over 4.5 times
their annual income.
But the impact of the new measures is expected to be minimal
in the near term. Only around 10 percent of loans fall into this
category nationally, rising to roughly 20 percent in London.
Adding to pressure on borrowing costs, recent strong
economic data has reinforced bets the BoE could raise interest
rates this year.
Cunliffe said he could not give a timing on when monetary
policy will be tightened, reiterating the BoE's stance that when
the time comes, the pace will be "gentler" and that rates would
not rise as high as in the past.
BoE Governor Mark Carney said last week that market
expectations that rates will be around 2.5 percent in three
years was "not inconsistent" with the economy returning to form.
"When Mark Carney was talking about 2.5 to 3 percent, I
think he was talking about the level to which the markets were
now predicting interest rates would go to," Cunliffe said.
"We've said that the things we are looking at now are
(measures of) the amount of spare capacity - the room for growth
that is in the economy to allow the economy to grow without
giving rise to inflation pressures."
(Editing by John Stonestreet)