It is too early to tighten underwriting rules for home loans to cool what critics say is a housing bubble in parts of Britain, the head of City watchdog the Financial Conduct Authority said this week.
The Bank of England’s Financial Policy Committee (FPC) meets next month to decide whether action is needed to keep the financial system stable after house prices notched up double digit rises, raising fears of a crash in the making.
The BoE also worries that some homeowners will be too stretched once interest rates rise, perhaps from next year.
The FCA, which introduced tougher underwriting rules for home loans from banks in April, said the new standards were starting to bite and changing the market.
“We are starting to see some slowing down,” FCA chief executive Martin Wheatley said.
Tightening the two-month old underwriting rules further is one option for the FPC, but Mr Wheatley was unconvinced.
“I think we just have to monitor. I think it’s too early to tell,” said Mr Wheatley, who sits on the FPC. Other options the FPC has include forcing banks to hold more capital in case home loans default.
Meanwhile, house prices rose more slowly in May than in April across England and Wales, a survey showed yesterday, in another sign that the housing market may be starting to cool. However, the report still showed robust growth in outright terms.