IMF tells Britain to act on housing price bubble risk

The International Monetary Fund has urged Britain to cool its housing market by reining in risky mortgages, the strongest warning yet from an international organis-ation about the risk of a property price bubble.

So far there have been few signs of a credit-driven bubble in British house prices, the IMF said.

But that could change fast and lenders should offer fewer mortgages that are far larger than borrowers’ incomes, it warned in an annual report on Britain’s economy published on Friday.

IMF managing director Christine Lagarde called on the Bank of England to use its powers over bank lending “early and in a gradual fashion as the first line of defence against risks... from the housing market”.

If efforts to rein in the market did not work the Bank of England would need to be ready to raise interest rates fast, the IMF said.

“Policy might... have to be tightened quickly if costs run ahead of productivity growth, slack is absorbed, or financial stability concerns cannot otherwise be addressed,” it said in the report.

British Finance Minister George Osborne, who spoke at the same news conference as Lagarde, said he would stay vigilant over housing, and that the BoE should not hesitate to act if needed.

Major British banks Lloyds Banking Group and Royal Bank of Scotland have already said they will not lend at multiples of more than four times a borrower’s income for mortgages over £500,000.