Bank of England warns of housing crash

House prices have risen sharply over the past year. Photo: PA

The deputy governor of the Bank of England has made the strongest warning yet from Threadneedle Street of the dangers that could be brewing in the housing market.

In a speech this evening, Sir Jon Cunliffe says: “It would be dangerous to ignore the momentum that has built up in the UK housing market.”

He explains that two things could happen next: the new rules on affordability introduced this weekend might cool things allowing a “soft landing” as price growth slows.

However, the alternative is a cycle of “strong demand, weak supply [of housing] and expectations of a rising market [which] could lead to a period of sustained and very powerful pressure on house prices.”

In the latter case, he warns that there could be a “major overshoot in prices and build-up in debt followed by a sharp correction”. In other words, a crash.

He points to crises like the crash in the 1990s as evidence that in the UK things tend to end in tears rather than the benign “soft landing.”

After months of reassurance from Sir Jon’s boss Mark Carney, the governor of the Bank of England, that there is no bubble in the market, the rhetoric from the Bank is hotting up.

It is the job of the Bank’s Financial Policy Committee to watch the market and it meets next on 17th June with its decision made public at the end of the month.

Watch closely for actions that could be announced then making it harder to get a mortgage.