The Governor of the Bank of England has attempted to ease fears of a house market crash after last night issuing his toughest warning yet on the property boom.
Mervyn King this morning downplayed concerns that, in warning house-hunters to consider the growing risk of house price falls, he was backing predictions of a property price slump made by many other commentators.
“All I did was point that when people are thinking of moving into the housing market they should be aware that house prices can sometimes go down as well as up,” Mr King told BBC radio.
“And anyone who stretches themselves to the limit by taking out a very large mortgage needs to be aware both that it’s possible interest rates might go up further and that house prices do not inexorably always go upwards.”
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However, with a report from the Royal Institution of Chartered Surveyors today reporting the first slow down in house price growth for six months, the comments failed to quell City concerns over the property sector. Shares in housebuilders dominated the losers’ board in London stock trading, with Wilson Bowden and Bovis homes shedding 3 per cent and Bellway down by more than 4 per cent.
Stock in mortgage banks such as Alliance & Leicester and Northern Rock also fell.
Last night Mr King told a CBI dinner that, after rising by 20 per cent in a year, house prices were “well above what most people would regard as sustainable in the long term”.
“It is clear that the chances of falls in house prices are greater than they were. So anyone entering or moving within the housing market should consider carefully the possible future paths of both house prices and interest rates.”
Expectations that interest rates were poised to rise hardened this morning after official data showed inflation rising to 1.5 per cent last month, its highest rate in a year. The increase was blame chiefly on the tight oil market, which prompted a surge in petrol costs.