Is George Osborne passing the property market buck to Mark Carney?

Is George Osborne passing the property market buck to Mark Carney?

Is George Osborne passing the property market buck to Mark Carney?

George Osborne yesterday gave Mark Carney and the Bank of England full control over measures required to cool the UK property market. This comes after months and months of growing concerns regarding UK property prices which continue to rise at a very uncomfortable rate. While the Bank of England operates independently from the government of the day there are many who believe George Osborne is attempting to pass the property market buck to Mark Carney.

Is this a valid argument? Should the government of the day or the Bank of England control the UK property market?

Political interference

One of the major issues for the government of the day and property markets is political interference to meet their own requirements. Time and time again we have seen governments of the day manipulating property markets for their own means such as up-and-coming elections, etc. The UK government today has been accused on numerous occasions of manipulating the property market as a means of improving the economy ahead of the 2015 election. So, is George Osborne right to pass control to the Bank of England lock, stock and barrel?

The Bank of England is already independent!

Quite why George Osborne has effectively passed control of the UK property market to the Bank of England in such a public manner, despite the fact the Bank of England is already in control of the UK economy, is a bit of a mystery. Is he effectively passing the buck? Are their growing concerns within the coalition government of a looming property market crash?

Mark Carney, the Governor of the Bank of England, has been publicising his ongoing concerns about the UK property market and the potential damage this could do to the UK economy in the short to medium term. While London has been the centre of recent concerns regarding house prices it is also worth noting that other areas of the country have also seen strong growth. The Bank of England now looks almost certain to tighten lending procedures, reduce the number of risky mortgages and effectively attempt to clean up the UK mortgage market. Is this enough?

Does the UK property price bubble need deflated?

One issue which many people seem to have ignored is the relatively low interest rate environment in which we live at the moment. UK base rates are currently 0.5% and while Mark Carney has suggested they could rise in the short to medium term it could be at least two years before we see a return to anywhere near 3% plus. As a consequence, when comparing rental yields on properties in the UK to investment yields available on deposit accounts and other assets, there are certainly many attractions for the UK property market.

However, this situation could change very quickly once the interest rate cycle in the UK does actually turn. Not only would we see a general increase in the cost of finance across the financial sector but many who have pushed themselves to the edge of “comfort” with regards to their mortgage arrangements will certainly feel the pinch as interest rates eventually tick higher. As a consequence, it does seem rather prudent that the Bank of England joins the fray in a more aggressive and forthright manner, attempting a controlled deflating of the UK property price bubble.

Watch this space, a great idea in principle but a very difficult plan to put into action.

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