In a report drafted following an IMF visit to the UK ahead of the European Referendum next month, the monetary organisation raised concerns about recent house price growth which has soared to more than three times income growth while the share of new mortgages at high loan-to-income ratios continues to rise.
The report noted that recent increased activity in the housing market was likely due to a temporary rush to purchase buy-to-let properties before the higher rate of Stamp Duty on second purchases took effect, but noted that if similar activity continued later this year, tighter LTI or loan-to-value (LTV) limits would be needed.
It explained this would be necessary to “avoid financial stability risks that may arise from excessive household indebtedness”.
“The buy-to-let market has grown rapidly in recent years. It should, like the owner-occupied market, be subject to macroprudential measures to mitigate financial stability risks following the now-concluded Treasury consultation on this matter,” the report said.
“It will also be important to continue closely monitoring potential risks in the commercial real estate market, which saw rapid price growth during 2014-15 that has recently paused.”
The IMF also warned about the ‘negative and substantial’ impact on output and incomes in the UK should voters favour an exit from the EU on 23 June.
Long-term effects on the UK economy could also see London lose its status as a global financial centre, as UK-based firms could lose their passporting rights to provide services to the rest of the EU, the IMF added.
It said: “A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output.
“In the event of a Leave vote, policies should be geared toward supporting stability and reducing uncertainty. If markets reacted sharply and adversely, it would be important to ensure that the financial system has adequate liquidity.”