BoE newly concerned over UK property

Bank of England officials signaled fresh concern on Wednesday about some sections of the UK real-estate market, saying they're prepared to step in to curb lending if financial stability is threatened by the risky behavior of banks and borrowers. 

A record of the November meeting of the BoE's Financial Policy Committee, published on Wednesday, showed that officials discussed at length the risks building up in British commercial real estate and the "buy-to-let" market, where private landlords borrow large sums to purchase homes for rental. 

The FPC said it "stands ready" to step in if buy-to-let or commercial real-estate markets overheat. 

The BoE has since the crisis acquired broad powers to strengthen financial-system resilience if risky lending poses a threat to the economy. These so-called "macroprudential" tools are designed to give central banks coping with weak growth and low inflation the flexibility to deal with financial-sector excesses without raising interest rates. 

The BoE has already shown its willingness to flex these new muscles, which include the ability to require banks to finance their lending with less debt and more equity to ensure they can absorb unexpected losses. 

Last year, officials set limits on lending to borrowers taking on loans of more than 4.5 times their annual income in an effort to cool an overheating residential property market. 

According to the record published on Wednesday, officials in November noted that commercial real-estate prices in Britain have been rising rapidly, driven by higher borrowing as well as investment from overseas. 

The buy-to-let market has experienced an even bigger surge. Lending to landlords rose 10 per cent over the past 12 months, far outpacing the 0.4 per cent rise in lending to owner-occupiers, according to the BoE. 

The rise in buy-to-let lending has been driven since 2008 by an increase in demand for rental homes. That demand has been fueled by an expanding population and more-conservative mortgage lending, which has prevented many would-be homeowners from getting on the property ladder until later in life, the BoE said. 

Low interest rates have also driven investors into real estate in search of better returns, the central bank added. 

The real-estate market was one of several financial-stability risks the panel discussed at its November meeting. Others included turmoil in emerging markets and the UK's yawning current-account deficit.