'Warp speed' risk for UK house prices but hiking rates off radar

By Freya Berry LONDON (Reuters) - Expectations of future British house price rises have hit a 14-year high just as central bank chief Mark Carney signalled monetary policy would remain exceptionally loose despite the potential for them to jump at 'warp speed'. Britain is growing faster than many other big rich economies although it has still not passed its pre-crisis peak. There are some concerns, however, that it is a housing-led recovery - and a potential bubble - spurred by government stimulus. The Royal Institution of Chartered Surveyors (RICS) said on Tuesday that 59 percent of surveyors in November forecast prices would rise over the next three months, the highest reading since September 1999. Speaking in New York ahead of the survey, Carney signalled that monetary policy was not about to be tightened even though there were potential dangers in the housing market. "We're concerned about potential developments in the housing market," Carney said. He said activity in the housing sector was lower than before the financial crisis, and bank underwriting standards had been "substantially transformed". "But there is a history of things shifting in the UK and the housing market of moving from stall speed to warp speed and underwriting standards slipping. So we want to avoid that," Carney said. The RICS measure of house prices hit +58 in November, edging up from October to an 11-year high as government incentives and more optimism on the economy helped spur demand. Economists in a Reuters poll had predicted the price index would rise to +60. Positive readings mean more members reported price rises rather than falls in the preceding three months. Prices rose for a second consecutive month in every area of Britain, while the average number of homes sold per chartered surveyor grew to 20.6, up from 15.9 in the same period of 2012. But RICS warned again of a lack of homes available to buy. "If there is not a meaningful increase in new homes, the likelihood is that prices, and for that matter rents, will continue to push upwards, making the cost of shelter ever more unaffordable," said Simon Rubinsohn, RICS's chief economist. Separate data showed Britain was making some progress in slowly reducing its reliance on consumers. Manufacturing output rose for a second month in October but the country's trade deficit was bigger than forecasts. WARP SPEED? In an upbeat message before the Christmas season, Carney said Britain's recovery was showing signs it can reach self-sustaining momentum but no tightening was on the horizon. "The Ghost of Christmas Yet to Come suggests that it is unlikely that equilibrium interest rates will return to historically normal levels any time soon," Carney said. "This prospect puts a premium on macro-prudential policies and financial reforms to manage the associated risks without abandoning the need to keep interest rates in line with the equilibrium level." The Bank of England has held interest rates at 0.5 percent since 2009, bought 375 billion pounds' worth of government debt and undertaken other stimulus measures to spur the recovery. RICS forecast house prices would increase by 3 percent next year and by almost 5 percent a year over the next five years. On November 28, the Bank of England refocused one of Britain's programmes to boost mortgage lending, the Funding for Lending Scheme, away from providing credit for house purchases. Separately on Tuesday, a group representing mortgage lenders predicted a rise in credit flowing into the housing market over the next two years but played down concerns about a bubble caused by the government's Help to Buy programme. The Council for Mortgage Lenders forecast a rise in gross mortgage lending to 195 billion pounds next year, and 206 billion pounds in 2015, up from 170 billion pounds this year. However, it saw a possible ceiling for prices which might peak during 2014 or 2015 due to new affordability rules, squeezed incomes, and verification checks on would-be borrowers. (Reporting by Freya Berry; Editing by Jeremy Gaunt)