LONDON, Sept 25 (Reuters) - Britain's housing recovery does notrequire any action from regulators but will need to be watchedclosely, the Bank of England's Financial Policy Committee saidon Wednesday.
The FPC, which has been tasked with spotting risks to theeconomy from the financial system, also singled out hedge fundsfor an examination of their vulnerability to rises in long-terminterest rates.
The FPC said it made no new recommendations at its mostrecent meeting on Sept. 18.
The watchdog said it was keeping a close eye on Britain'shousing market which has picked up speed and raised someconcerns from some external economists about the risks of a newbubble in property prices.
The FPC said the housing recovery "appeared to have gainedmomentum and to be broadening" but activity and loan-to-valueratios on new mortgages were below historic averages.
Debts costs were low and house prices compared with earningswere at their level of a decade ago.
"In view of that, the Committee judged that it shouldclosely monitor developments in the housing market and banks'underwriting standards," it said in a statement after its Sept18 meeting.
If any action was needed, it would be "proportionate to therisks and consistent with a graduated response."
House prices in Britain as a whole rose 3.3 percent in the12 months to July but jumped nearly 10 percent in London,official data showed last week.
The housing recovery has been helped by government and Bankof England measures to free up mortgage lending. A new phase ofthe government's Help to Buy programme is due to be launched inJanuary.
Bank of England Governor Mark Carney and finance ministerGeorge Osborne have shown no concern about the prospect of ahousing price bubble, pointing to levels of activity in theproperty market that are below their pre-crisis peak.
But earlier this month, a group representing Britishproperty surveyors called on the BoE to take measures to slowmortgage lending if house price growth exceeds 5 percent a year.
FOCUS ON HEDGE FUNDS
In June, the BoE ordered an investigation into thevulnerability of Britain's financial institutions and borrowersto higher interest rates when central banks around the worldstart to wean their economies off massive stimulus.
The FPC said in its statement on Wednesday that a moderaterise in long-term interest rates did not pose an immediatethreat to major banks and insurance companies and so far "hadnot led to dislocations in market functioning or significantimpact on financial institutions."
However, levels of leverage within hedge funds, which couldmake them vulnerable to a sharp rise in borrowing costs, "neededto be looked at more closely," the statement said. (Reporting by Huw Jones and William Schomberg)