The Bank of England resisted calls to change course and up rates, leaving them at their historic low of 0.5% – where they have been for more than five years – while the quantitative easing asset purchase programme also remained the same.
No one expected anything different from the monetary policy committee this month, although policymakers are coming under increasing pressure to consider rises much sooner than the expected spring 2015 horizon.
The Organisation for Economic Co-operation and Development (OECD), which just lifted its UK growth forecast to 3.2%, has warned that action may be needed in the not-so-distant future to cool the housing market.
Bank deputy governor Sir Jon Cunliffe, meanwhile, has voiced his concerns that the surging residential property market could pose the biggest danger to the country’s financial stability moving forward.
House prices grew by 10% in the year to March and have returned to the levels they reached in late 2006 as confidence continues to grow and mortgages become more readily available through initiatives such as the government’s flagship Help to Buy scheme.
And growth has not just been limited to London.
Stephanie McMahon, Head ofResearch at Strutt & Parker, comments: “We are currently seeing constrained, but cheap, lending across the UK– which means that buyers can afford to purchase property because of lower monthly mortgage costs.
“Meanwhile, popular areas of the country like London, the south east, and highly desirable parts of the UK like The Cotswolds are
experiencing high levels of demand without the housing supply to match and as a consequence prices are going up.
“In some other areas, prices are not rising at all – we are talking only about very specific parts of the country.
There has been much talk of a housing bubble, but this current situation does not fit the normal definition of a housing bubble – where prices are pushed up because of loose lending and speculation that assets will endlessly go up and up in value.
Perhaps in this era of Quantitative Easing and cheap money, the definition of a housing bubble needs to change.
If that is the case, then it will be higher interest rates and the ongoing toughening of lending parameters which deflate the balloon as the era of cheap money comes to an end.”
Sir Jon also claimed expectations for further rapid rises in house prices appear to be setting in. This is despite suggestions of a pause in some of the more recent activity data.
“It would be dangerous to ignore the momentum that has built up in the housing market,” he said.
“There is good reason to believe that a mutually reinforcing combination of strong demand, weak supply and expectations of a rising market could lead to a period of sustained and very powerful pressure on house prices in the UK.”
Policymakers may therefore be forced to increase interest rates sooner rather than later.
The Bank is set to update its forecasts for GDP growth and inflation at its upcoming quarterly inflation report.