Official warning about the housing market has come as the Bank of England offers concern about the current boom.  All of the optimism and confidence in the housing market may cause it to grow so rapidly that a crash could occur.  Demand has been so strong that property prices are rising quickly and while it is contributing to the smiles of home sellers and homeowners watching their equity grow, it could put property out of the reach of the buyers that have pushed the demand - the first time buyer. 

Losing the presence and confidence of the first time buyer could cause the property ladder to freeze just at the time it has begun to thaw.  It was recently reported that one in every 15 homes sold in London is selling for £1 million or more. 

The Bank of England’s deputy governor, Sir Jon Cunliffe, expressed concern that buyers may be taking on property mortgages that will be difficult to handle when interest rates increase.

Cunliffe said, “The growing momentum in the market is now in my view the brightest light on that dashboard.  It has not yet been accompanied by a substantial increase in aggregate mortgage debt, though gross mortgage lending is growing and there are signs that debts are becoming more concentrated.

“But other outcomes are very possible and the financial policy committee (FPC) will need to be both vigilant and ready to act.”

Economists have pointed out that while a housing market boom is in progress in London, elsewhere the property ladder is thawing out slow and steady.  The property ladder in London failed to freeze at all during the recession with the capital realizing consistent rising house prices. 

The new Mortgage Market Review (MMR) went into place last weekend to stress test mortgage and remortgage borrowers against rising interest rates.  The MMR was put into place to prevent borrowers from committing to loans that would turn out to be unaffordable with an increase in the interest rate.  Nevertheless, it will be important for watchdogs to keep an eye on the rising demand and dwindling supply of properties throughout the UK.