Jump in mortgage arrears fuels housing crash fears

Fears of A housing market crash rose yesterday after the Bank of England issued an unexpected warning of an asset price correction and new figures revealed the first rise in mortgage arrears for six years.

Fears of A housing market crash rose yesterday after the Bank of England issued an unexpected warning of an asset price correction and new figures revealed the first rise in mortgage arrears for six years.

Economists on the Bank's Monetary Policy Committee are worried that investors' increasingly desperate search for profit in a low inflation environment was forcing them to take on more risk.

"The committee judged that there might be some downside risk of an asset price correction," the minutes of their January meeting showed.

The comments come just days after it emerged that members of the US central bank were worried by "potentially excessive risk taking".

Stephen Lewis, the chief economist at Monument Securities, said: "Although the MPC did not spell it out, such a development would carry obvious dangers. We have been warned."

Meanwhile, there were fresh concerns of a house price crash after the Council of Mortgage Lenders said the number of borrowers behind on their mortgage had shown a "material" increase.

Short-term arrears of between three and six months rose from 49,720 in the first half of last year to 53,960 in the second half - an 8 per cent increase.

The CML said the numbers were "extremely low" by historic standards - there were 190,000 in the first half of 1994 - but admitted it pointed to problems ahead.

"With short-term arrears increasing, we are bound to see a rise in longer-term arrears and repossessions following behind," Michael Coogan, its director general, said. He said repossessions were still at their lowest levels since 1982.

Hometrack, a property website, said house prices had fallen for the seventh consecutive month in January. The average property price fell by 0.4 per cent compared with December. The figure contradicts anecdotal evidence of a surge in interest in the new year.