That puts the house-price-to-earnings ratio back to its level in 2003. Transactions are running at 2005 levels – a little over 110,000 a month. Looking at the most recent data, there has been a slowing in the monthly pace of increase. In the three months to February this year, prices grew at an annualized rate of 11% and transactions increased at an annualized rate of over 50%. But the very latest figures for March, however, could suggest a pause in the growth in prices and activity – prices were flat on the month and transactions actually fell by 5%. And the latest mortgage approvals numbers, which came out this morning and tend to lead transactions, fell again in March leaving the number of approvals for house purchase down 12% on their January peak. Discussions with the lenders suggest that the checks that lenders now need to do under the FCA’s new Mortgage Market Review rules, about which I will speak later, may be slowing the speed with which approvals can be processed. But just as one cuckoo does not signal spring, it is far too early to say, on a couple of month’s figures, whether this is the beginning of a turning point in the market. Indeed it would be dangerous to ignore the momentum that has built up in the UK housing market since the spring of last year.
The FPC has said that it would take a proportionate and graduated response to evolving housing market risks. Experience suggests that momentum in the market, and an associated increase in indebtedness, can be hard to check, particularly if expectations of a rapidly rising market become deeply entrenched. A number of countries have had to take a series of actions over time to slow fast growth in housing market activity to more sustainable rates. 2  See the Box on page 22 of the May 2013 inflation report. BIS central bankers’ speeches  5  To return to where I started. The Financial Policy Committee of the Bank of England is charged with looking ahead to identify and to counter risks to financial stability. There will always be a number of blinking warning lights – risks generated at home and risks coming from abroad – on our dashboard. 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. This could fade as affordability and lender constraints act increasingly as a brake on momentum. But other outcomes are very possible and the Financial Policy Committee will need be both vigilant and ready to act. 6  BIS central bankers’ speeches