ECB takes Bank to task over property price bubble

Booming House prices in countries such as the UK must be monitored closely as a sudden property crash could threaten the stability of the financial sector, the European Central Bank said yesterday.

The ECB urged policymakers to pay attention to forces driving house prices when they set interest rates because stable prices could be undermined. It cited Denmark, the Netherlands and the UK as countries where homeowners had taken advantage of surging house prices to take out big mortgages.

"The resulting high indebtedness increases the vulnerability of households to income shocks and interest rate changes and may eventually affect the stability of financial institutions," the ECB said. And in a veiled criticism of last month's rate cut by the Bank of England, the ECB added: "Lower rates could fuel the boom or even a bubble further, thus later aggravating a downward correction of house prices with negative consequences for the economy."