News Column

Vince Cable: rising house prices destabilising economy

May 20, 2014

Patrick Wintour, theguardian.com



Vince Cable has warned the economy is being destabilised by booming house prices and any sane person should worry about what is going to happen when interest rates rise as the economy returns to normal.

The business secretary also warned that household debt in relation to income is set to become significantly higher in the UK than almost anywhere else, and contains serious dangers that represent "a real, real, real worry" for policymakers and homeowners.

He said forecasts show that levels of household debt will surpass those reached before the financial crash in 2008.

He said the supplementary Help to Buy scheme designed to help people purchase existing homes as opposed to new build was simply feeding demand in London and the south-east. He said the deep, underlying problem was not Help to Buy but a failing housing market.

Cable's previously unreported remarks were made at a meeting of the Resolution Foundation thinktank last week, and go further than his previous warnings. They come as the Bank of England governor, Mark Carney, also called for the government to act on house prices.

Cable said: "In the next few years we are going to get back to high levels of household debt in relation to income, significantly higher in the UK than in almost any other country. A lot of this is due to booming house prices. And that contains serious dangers, not least the fact the large numbers of people taking on mortgages at considerably more than three times their income are going to face higher interest rates when we return to normality." He added: "It is a real, real, real worry."

He said: "I am very concerned by the build-up of household debt in relation to income. That was one of the underlying factors in the build-up to the financial crash. It meant mortgage debt was 85% of household debt. People have stopped talking about that. In the last few year the ratio in the UK has fallen back substantially. A lot of people have paid off their debt but the projection is that it is going to start rising rapidly and surpass the previous levels. This is almost entirely a housing story. I have expressed my views forcibly over the last nine months. I do worry about a new surge in house prices with all the practical consequences of that. It is a particular London phenomenon."

At the weekend, Cable said the government needed to listen to Carney. "Any sane person would be worried about it when you have got more than 10% inflation in the market and we have much more than that in London and the south-east. It is important because it is economically destabilising and it contributes enormously to distributional inequalities of wealth."

He added: "If you look at what Help to Buy has done, very little has fed into the London market the most important was support for purchase of newly built houses. I don't think there is any problem with that There is a really big, big problem around the housing market but the Help to Buy is one relatively small component of the argument."


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Source: Guardian Web


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