Bank of England cuts mortgage support

On Thursday the Bank of England made a surprise announcement that it would put the brakes on a scheme launched in 2012 to help boost mortgage lending.

The central bank said the Funding for Lending Scheme (FLS) would cease to offer banks incentives for mortgage lending, but instead focus on helping small firms to borrow. The news caused shares in house-building firms to fall heavily.

Britain’s housing market has staged an unexpectedly strong turnaround since the FLS was launched last year, in an effort to spur the long-delayed recovery by unblocking credit markets.

Mark Carney said “Given the access to credit for households now … it would no longer be appropriate or necessary for us to have our foot on the accelerator. It’s better to shift into neutral”.

Another government initiative to aid the housing market, Help to Buy, remains in place.

House prices have risen by almost 7 percent over the past 12 months – their fastest growth in more than three years – raising concern about the risk of a future bubble as well as rising living costs at a time of stagnant wages.

London prices have surged even more, partly on the back of foreign demand, and Chancellor George Osborne is widely expected to introduce a capital gains tax on foreign-owned property in next week’s half-yearly budget update.

“We did not see an immediate threat coming from the housing market but we are concerned about the prospective evolution of the housing market,” Carney said, adding that the Bank could take further steps to rein in house prices if needed.

Osborne, who has made a revival of Britain’s housing market a key part of his economic plans, endorsed the decision.