The issue is tied into the much discussed question of the timing of the next interest rise, and Carney made it clear that he would not be following the lead of the US Federal Reserve, who are expected to announce their first interest rate hike in a decade this week.
The Bank of England ‘s Monetary Policy Committee have kept interest rates at 0.5% for the last seven years now, with various hints along the way (particularly in the last year) that a rise would come soon. Yet it still hasn ‘t; and this has drawn the Bank (and Carney himself) much criticism.
However, Carney has defended his position, claiming that the majority of the factors that have led to the various decisions to keep rates low have been unforeseen.
Referring to questions about his claim in July that “the decision as to when to start such a process of a gradual rate hike will likely come into sharper relief around the turn of the year” he made this exact point.
This statement, he had said, was not a promise. And further, it being fulfilled relied on various conditions being met, such as prices and wages increasing across the board.
“Were those conditions fulfilled as we proceeded through the year?” he asked, rhetorically, in an interview with the Financial Times. “No, they weren ‘t.”
“Did I know what oil was going to fall 12% in the last 10 days?” he asked, again rhetorically. “No, I didn ‘t know that.”
Inflation in the UK generally has been low of late; this month the ONS reported a rise from -0.1% to 0.1%, an increase, but not nearly enough to meet the Bank ‘s (and the Government ‘s) current target of 2%.
This has been a factor in the bank ‘s decision to keep rates low.
As has stunted wage growth which, in the three months to October this year sat at just 2.4%. Carney has previously said that he does not expect a rate rise to happen until wage growth hits at least 3%.
Diverting the issue away from the repeated question of when rates will rise, Carney instead turning his attention to policies that the Bank can enact in order to curb the growing amount of credit being lent by high street banks and building societies; in particular with regard to buy-let mortgages.
While George Osborne has been fairly clear about his worries about the effect that the growing buy-let market has been having of late, and indeed added a 3% surcharge to stamp duty payable on buy-let properties in a direct attempt to curb it; Carney has, historically, been less explicit on the score ñ until now.
The surging number of private landlords has, for a while now, been contributing to falling home ownership levels and growing house prices across the UK.
Carney ‘s worries are based on concerns regarding what would happen to the large numbers of existing properties owned by landlords should house prices start to fall.
“We have to be careful around that sector,” Carney said, referring to the buy-let market, “and I think collectively there are a number of things happening and we are watching it, we are watching it closely and we will take action.”
The Banks ‘ Financial Policy Committee made statements to the same effect, saying that “the stock of buy-let lending might be disproportionately vulnerable to very large falls in house prices.”
The concern is about the effect that large scale sale of buy-let properties could have on the wider market.
Osborne ‘s stamp duty changes came after these statements from the FPC, and are expected to curb levels of buy-let lending (which currently accounts for 16% of the mortgage market in the UK). However, there is a worry that until the changes fully come into effect in April next year, we could well see one final surge of lending as landlords try to snap up properties before they become too expensive.