Fears of a crash in house prices rose yesterday after senior officials at the Treasury and Bank of England admitted the UK might be in the grips of a "bubble".
John Cunliffe, the head of macroeconomic policy at the Treasury, told MPs a slump in property prices was "one of the most important risks" to the economy. "There clearly is a risk to the housing market both ways," he told the Commons Treasury Committee, adding that there were risks of an "abrupt fall".
Meanwhile Kate Barker, a member of the Bank's Monetary Policy Committee and author of a major investigation into the housing industry, said price were at "historically high levels". She told economists in Washington: "There are some signs which might indicate a housing bubble but it is not clear how far these may have contributed to higher prices."
She highlighted the huge growth in the buy-to-let market thanks to buyers looking for a capital gain, and parents using equity in their homes to help their children with a deposit to clinch their first home.
Ms Barker dismissed calls for the Bank to set interest rates to target the prices of assets such as houses. "This is likely to create uncertainty about what the aims of monetary policy are, and lead to volatile inflation expectations," she said.
Her comments came as Oxford Economic Forecasting, a private consultancy, said house prices were overvalued by as much as 19 per cent. It said the chance of a fall in prices this year was almost 85 per cent, but the decline would be limited to a 4 per cent drop. Its report, prepared by the estate agency Cluttons, concluded there would be no crash and prices would rise over the next five years. But it warned: "History tells us that UK house prices have more often trodden a path of boom and bust."
In a wide-ranging speech, Ms Barker continued to take a "hawkish" line on rates, saying it was "too early" to see recent rises in productivity as a structural improvement in the UK's economic performance. "The evidence is building, but cannot yet support optimism similar to that of the US in the mid-Nineties," she said.Reuse content