Should BoE cap national house price growth at 5% a year?
RICS urge BoE to avert housing bubble but proposals likely to upset first time buyers
THE Royal Institution of Chartered Surveyors (RICS) has urged the Bank of England (BoE) to limit national house price growth to five per cent a year - but its proposals are likely to upset first-time buyers.
The recommendation follows concerns about another unsustainable housing boom.
House prices have been rising in recent months, boosted by the government's scheme to help first-time buyers afford mortgages. The most recent figures from the Halifax showed that prices were 5.4 per cent up on last summer.
RICS does not want the BoE to cap the amount individuals can charge for their homes, but to control how much banks lend through mortgages.
It suggests banning banks from lending more than 80 per cent of a property's value and shrinking the maximum life of a mortgage, which would reduce demand in the housing market and therefore contain prices.
Yesterday, BoE governor Mark Carney warned that policy makers needed to be "vigilant" against the risks of a housing bubble caused by the Government's Help-to-Buy mortgage scheme.
He told the Treasury Select Committee that "more intensive supervision of lending" was possible but stressed that there was little sign of a housing boom yet, adding that there were "big pockets of the country where there has not been any meaningful recovery".
Today, Matthew Pointon, property economist at Capital Economics, tells the Financial Times that a strict five per cent limit would not be practical because of these wide regional variations.
"If house prices on the national level are driven above five per cent due to a very strong London market, but prices are falling in the North, it is not clear an immediate cap on loan-to-value ratios would be appropriate," he says.
Business secretary Vince Cable has questioned whether the second stage of the Help-to-Buy policy should be introduced at all next year. "There are risks, not least the housing market getting out of control," he said.
A move to control mortgage lending will "draw protests from the generation of young people already frozen off the property ladder by house price rises", says the Daily Mail's business correspondent Becky Barrow.
"With an average home now costing £170,000, nearly seven times the average full-time salary, the introduction of a compulsory deposit amount - such as 20 per cent - could make it even harder for young people to get on the property ladder," she says.
Ben Chu, economics editor of The Independent, says the Treasury might also be hesitant about restricting access to mortgages when the pick-up in the housing market appears to be linked to the recent upturn in the economy. "The Treasury might well fear that if the Bank were to restrict access to mortgages, the wider recovery could be aborted." ·