According to the IMF’s 2016 Article IV Consultation Concluding Statement of the Mission for United Kingdom:
Macroprudential policy will need to tighten later this year if housing and mortgage markets remain buoyant.
- Housing and mortgage markets decelerated somewhat between mid-2014 and mid-2015 following macroprudential tightening. More recently, however, house price growth rose to more than three times income growth, and the share of new mortgages at high loan-to-income (LTI) ratios is again rising.
- The recent increased activity may partly reflect a temporary rush to buy houses before higher transaction taxes on some home purchases took effect in April. However, if current housing and mortgage market trends persist, further macroprudential tightening (e.g., tighter LTI or loan-to-value limits) will be needed later this year to avoid financial stability risks that may arise from excessive household indebtedness.
- The buy-to-let market has grown rapidly in recent years. It should, like the owner-occupied market, be subject to macroprudential measures to mitigate financial stability risks following the now-concluded Treasury consultation on this matter.
- It will also be important to continue closely monitoring potential risks in the commercial real estate market, which saw rapid price growth during 2014-15 that has recently paused.