The ever-increasing housing prices in the United Kingdom has prompted the Bank of England (BoE) to take action to cool the housing market in order to avoid potential bubble-like risks. BoE Governor Mark Carney announced this morning that the central bank will intervene in the lending process and limit the number of riskier mortgages in an attempt to limit consumer debt build up that could effect the economic recovery.
The central bank made two recommendations: lenders must limit the mortgage-to-income ratio to 4.5 times and keep these riskier mortgages capped at 15 percent of new home loans. During its semi-annual financial stability report, the BoE said “Without policy action, the risk of excessive household indebtedness is material.”
The concern of overly indebted consumers is a real issue for the central bank. Britons owed a record £1.28 trillion on currently owned homes through April, which is roughly 76 percent of gross domestic product. The problem is more of a concern in London where the average loan of £200,000 is four times the borrower’s gross income, according to the Council of Mortgage Lenders. This is nearly double the UK average.
GBPUSD is gaining ground above the 1.7000 key price level, a five year high. Traders are pushing against an interesting price action resistance level on the 10-year monthly chart. The momentum on the monthly chart is strong, and a close above 1.7035 would likely signal a continuation to 1.7255.
Long-term support levels will be found at 1.6900 and the 200 EMA at 1.6660. The pair is overextended near-term, and a pullback to 1.6950 is probable. Nevertheless, the pair remains bullish.