House prices in the United Kingdom are “significantly overvalued,” according to an international economic organization, the Financial Times reported Tuesday.
The Organisation for Economic Co-Operation and Development warned of the danger of a protracted period of large house-price falls with implications for a slowdown in consumer spending, the Times reported.
The group, described as an organization of the world’s 30 wealthiest economies, said the current housing boom was unusual because of its duration, size and the degree to which it was widespread among the countries in the OECD, accounts said.
Of the 15 countries with booming property markets, the group found that only the UK, Ireland and Spain were “significantly overvalued,” according to reports. This was based on large statistical models, taking into account demand and supply.
However, the OECD noted that even though the mortgage debt burden had risen, the ability to service that debt had improved since the early 1990s, reports said.
As in the United States, house prices were driven upwards by relatively easy lending and low interest rates and, additionally in the UK, by demand from buy-to-let, an increase in net migration and tight supply due to restrictive planning regulations, the OECD said, according to reports.
The OECD forecast that the Bank of England’s main interest rate would remain at its current level of 4.5 percent, although it warned that “house prices have become potentially more sensitive to even modest changes in their (interest rate) levels,” the Times reported.
However, there was further evidence yesterday that the activity underlying the housing market remains fairly robust, according to reports.
Figures from the Bank of England showed that mortgage approvals for house purchases rose from 108,000 in September to 113,000 in October, the 10th increase in the past 11 months, the Times reported.
The OECD describes itself as a group of “like-minded” countries committed to a “market economy and a pluralistic democracy.” It was founded in 1961 to administer Marshall Plan aid after World War II.
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