Home ownership in the UK set to fall, says B of E's David Miles
Tuesday, 22 November 2011 05:19
A key Bank of England policymaker has said that the number of people in the UK owning their own home could start falling as a result of the financial crisis.
David Miles, speaking to the Northern Housing Consortium in York today said that because of weak prospects for housing growth banks were less likely to issue loans they consider to be risky through high loan-to-value mortgages.
In a speech entitled “Mortgages, housing and monetary policy – what lies ahead?”, Mr Miles said: “I believe that it is likely that we will get back – maybe slowly – to more normal rates of economic growth and that households’ uncertainty about the future will fall back. But I do not believe that the housing market and the mortgage market will get back to where we were in the years leading up to the crisis. I also do not think we should regret that.”
Mr Miles outlines the fact that confidence in the housing market continuing its ongoing ascent of prices stopped suddenly in the autumn of 2007 it affected the availability of new mortgages from banks.
“High leverage, combined with a high debt-to-income ratio, makes new buyers vulnerable to a shock to income and to a reduction in house prices. Once banks and, crucially, those that fund banks, no longer believed that rising nominal house prices were overwhelmingly the most likely outcome, the pricing and availability of mortgages to new buyers that we had got used to in the years up to 2007 was no longer sustainable. That point was reached rather suddenly in the UK in the autumn of 2007,” Mr Miles said.
However, Mr Miles said that another factor is that tax incentives favouring home ownership above renting made the rate of home ownership in the UK inefficiently high and that the economy should become more stable and this would make setting monetary policy easier.
The minutes from the Bank of England's last policy meeting earlier in November will be published tomorrow.
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