LONDON, July 29 (Xinhua) -- An upturn in mortgage lending in Britain has led some to call for an early rise in the Bank Rate to stave off the formation of an asset bubble, but that would be to ignore the real state of the housing market.
Figures from the central bank, the Bank of England (BOE), Tuesday showed new mortgage approvals for June at 67,196, a rise of 8 percent on the May figures (62,000) and the first increase in approvals in the four months beginning February.
Alarm bells have been sounded by economists and policymakers since the end of last year that there is the potential of an asset bubble forming in the UK housing market.
BOE governor Mark Carney has cautioned that a housing bubble is the most pressing danger to the economic recovery.
He warned last week, at a business conference in Glasgow timed to coincide with the opening of the Commonwealth Games, that the BOE was “well aware that a prolonged period of historically low interest rates could encourage other risks to develop. In the UK, the biggest risks are associated with the housing market.”
But there are two reasons why the June rise is no sign of an asset bubble.
First, mortgage approvals in the February to May period declined in number because banks and other financial institutions were under instructions from the BOE’s own Financial Conduct Authority to rein in mortgage lending.
The FCA did this through its Mortgage Market Review (MMR), a policy gestated through discussions between 2009 and 2012 that aimed to find ways to tackle structural problems in the British mortgage market which could threaten wider financial stability.
This was a response to a mortgage market in 2007 which was overheated and competitive, resulting in foolish mortgage approvals by some lenders.
This MMR came into operation at the end of April and banks and other financial institutions had already begun to take action in the months before in anticipation of it.
Second, the figures for mortgage approval now are significantly below those of the 2007 overheated period.
In that time a peak of 120,000 mortgage approvals per month was reached. This plummeted in the recession after the financial crisis to barely reach 30,000 per month by the end of 2009.
In addition the June figure of 67,196 mortgages is well below this January’s figure of 75,900, indicating that the market is not overheating -- perhaps as a result of potential buyers baulking at current high property prices and also exercising caution in the face of a likely Bank Rate rise.
The June mortgage figures will fuel debate about the Bank Rate rise date, and will be used by those in favor of an earlier rise, perhaps this November.
But the BOE itself has made clear that it does not see the Bank Rate as a means of controlling the housing market, and would only use such a rise in the most serious of situations.
Under those circumstances, the June mortgage uptick will have no effect on monetary policy.