Bank of England Deputy Governor Jon Cunliffe said on June 1 that the central bank was witnessing proof of a slowdown in the housing market. House prices have been rising at double-digit rates annually but there have been signs of a likely slowdown, with Bank of England data on Tuesday revealing a fast drop in mortgage approvals in April.
Cunliffe said in an interview with ITV News:
“We see evidence of a slowdown in the housing market. There are some straws in the wind that show the market is starting to turn. The Bank expects the economy … to slow quite a lot over next year or so and I think that will have an impact on the housing market.”
Mortgage lender Nationwide said that British house prices soared again in May but a slowdown, triggered by the escalating cost-of-living crunch, is likely on the way. Cunliffe said he was “certainly not predicting a crash in house prices”.
“When the rate of increase goes down, that is a correction, and then there’s a question of whether house prices rise faster than other prices. We are seeing inflation at very high rates so actually in real-terms, you could find that house prices are going down quite substantially.”
British consumer price inflation reached a 40-year high of 9.0% in April, and financial markets predict the BoE to hike interest rates to at least 2% by end of 2022 from 1% now. Asked whether the era of cheap borrowing had elapsed, Cunliffe said:
“We have to ensure that the inflation we are seeing in the economy now … doesn’t become the new normal. So interest rates may well have to rise further.”
He also said that he did not think Britain was returning to the interest rates of the 1990s any time soon, when the bank rate varied between 5% and 14.88%.