Vince Cable – rising house prices destabilising economy
Business secretary says huge rises are contributing to inequality and fears for impact of higher interest rates on households.
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 properties – 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 buildup of household debt in relation to income. That was one of the underlying factors in the buildup to the financial crash. It meant mortgage debt was 85% of household debt. People have stopped talking about that. In the last few years 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.”