House price inflation is set to rise further, and the Bank of England (BoE) is continuing to monitor buy-to-let mortgages used by small landlords to buy property to rent out.
The BoE’s Financial Policy Committee (FPC) said on Friday risks to Britain’s financial stability has risen over the past three months. Developments in China and other emerging markets are contributing to the risks. However, the resilience of British banks has also improved, the committee said.
“Overall, the FPC judges that the outlook remains challenging. While the resilience of the financial system has continued to improve, downside risks have risen,” it said in a statement.
According to the FPC there is at present no immediate case for action in the buy-to-let mortgage market, but it is alert to the rapid growth of the market and potential developments in underwriting standards.
The BoE recently asked for formal powers to intervene in the buy-to-let sector. Britain’s finance ministry is considering the request.
The BoE did however give a clean bill of health to the government’s scheme to help first-time buyers purchase homes, saying it did not pose a risk to financial stability. There was therefore no need to change its terms.
In its previous report in June, the FPC focused on the risks posed by the debt crisis in Greece. While this situation has improved, concerns about tumbling share prices in China have increased.
According to a report by Reuters, central bankers worry that events like interest rate hikes could trigger disorderly selling in bond markets. It also raised concerns about automatic trading.
Despite expectations that an interest rate hike has been pushed back to late next year as a result of emerging market risks and a delay in the US Federal Reserve raising rates, some economists still believe rates could rise early in 2016.