United Kingdom: Financial Sector Assessment Program-Property Markets and Financial Stability-Technical Note

IMF Staff Country Reports, June 17, 2016

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Canonical URL: United Kingdom: Financial Sector Assessment Program-Property Markets and Financial Stability-Technical Note

Main purpose: to assess the risks to the financial sector that currently emanate from the United Kingdom property markets.
Core premise: the interaction of property markets with financial markets has important implications for financial stability.
Mechanisms emphasized:
- Cycles in the prices of housing and commercial property affect the balance sheets of households, banks, and other financial institutions.
- Excessive lending and price swings in property markets can cause significant distress to both borrowers and lenders.
- A drop in prices of real property weighs on firms’ access to finance, which can reduce economic activity, lead to further declines in asset prices, and generate potential financial stability risks.

Property price cycles transmit to financial sector solvency and liquidity via household and corporate balance sheets.
Excessive lending amplifies vulnerability to property price reversals.
Commercial real estate (CRE) and housing market dynamics both pose material risks to banks and other financial institutions.
Adverse property price shocks can reduce firm access to finance, exacerbating economic downturns and asset-price declines.

Subjects: Banking, Debt service ratios, External debt, Financial institutions, House price indexes, Housing, Housing prices, Mortgages, National accounts, Prices
Keywords: Commercial real estate, CR, CRE price reversal, Debt service ratios, Global, house price growth, House price indexes, house-price shock, Housing, Housing prices, ISCR, lending, mortgage lending, mortgage rate, Mortgages, price, property market, U.K. BTL sector

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