Bank of England urged to cap house price rises at 5% over fears of 'dangerous' debt bubble
Royal Institution of Chartered Surveyors publishes report arguing the Bank should consider imposing a 5 per cent cap on annual house price appreciation
Britain’s leading chartered surveyors have made an unprecedented call for the Bank of England to put a cap on annual house price inflation in order to avoid a “dangerous” debt bubble.
The Royal Institution of Chartered Surveyors (RICS) argues in a report published today that the Bank should consider imposing a five per cent limit in annual average house price appreciation. If prices rise faster, RICS argues that the Bank’s Financial Policy Committee should use its new suite of regulatory powers to make mortgage lending scarcer and more expensive.
“The cap would send a clear and simple statement to the public and the banking sector, managing expectations as to how much future house prices are going to rise” said RICS’s senior economist Joshua Miller. “We believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt”.
House prices have been rising in recent months, boosted by the Government’s shared equity scheme for first time buyers and a Bank of England programme that subsidises lenders’ borrowing provided they pass on the loans to households and firms.
The most recent figures from the Halifax showed that prices were 5.4 per cent up on last summer, while the property website Rightmove has reported that asking prices in London are 10 per cent up on a year earlier. The Council of Mortgage Lenders said yesterday that gross mortgage lending in June rose 29 per cent on a year earlier. The interest rates charged on mortgages have also been falling.
Earlier this week Antony Jenkins, the chief executive of one of the UK’s biggest banks, Barclays, warned of an incipient “property-driven boom” adding that “these things can be difficult to control”.
RICS said that the Bank could rein in prices house by limiting the amount people can borrow in relation to their incomes, demanding larger deposits from first-time buyers or imposing tighter repayment terms on mortgages.
RICS’ call is likely to add fuel to the burning debate over the wisdom of a new Government mortgage subsidy scheme which is due to come into operation in January. George Osborne dismissed talk of a UK house price bubble in a speech earlier this week, pointing out that house prices, adjusted for inflation, are still down by a quarter from their peak level in 2007. “This debate would benefit from a little less assertion and a little more examination of the evidence” the Chancellor said.
The new Bank of England Governor, Mark Carney, has also played down concerns about the dangers of an overheating property market. The Bank has already been given the authority to decide in three years’ time whether the Treasury’s various mortgage subsidies should be brought to an end.
But the Business Secretary Vince Cable this week said the Treasury should reconsider its extension of those subsidies. “There are risks, not least the housing market getting out of control” he said.
RICS pointed out in its report that Canada, where Mr Carney was central bank governor until July, put in place similar curbs on mortgage lending between 2008 and 2012.
Q&A Regulating the housing market
Q. How can house prices be capped?
A. RICS argues that the Bank of England now has the necessary tools to do the job. The Bank could require commercial banks to tighten their mortgage lending conditions, for instance by requiring prospective borrowers to produce larger deposits. This would reduce demand and thus contain prices.
Q. Won’t that prevent people getting new mortgages?
A. Yes, but that’s the point. RICS and others think there is too much demand chasing too little housing supply and that this imbalance is in danger of pushing up prices too quickly. People could be in danger of over-extending themselves in order to get on the housing ladder.
Q. But will a cap work?
A. Some will point out that the Bank has had huge difficulty with its primary job of keeping inflation at 2 per cent and will be sceptical over its ability to limit house price rises to 5 per cent annual growth. But RICS argues that Canada, where Mark Carney was recently governor, shows that these regulatory tools can be effective. The Canadian authorities moved to restrict the availability of mortgages between 2008 and 2012. Putting up rates would probably have a negative impact on growth in the rest of the economy, whereas targeting mortgages would, supposedly, only affect housing assets.
Q. What would this mean for owners who want to move?
A. By cooling the market, these measures would probably make it more difficult for some to find buyers. But most people will be buying another home. If the measures successfully contain house price inflation, this group would benefit because their next property would probably be cheaper.
Q. Will there be other unintended consequences?
A. The pick-up in the market this year has coincided with the return of the wider economy to growth. The two are likely to be related, as people tend to spend more when the think their houses are worth more. The Treasury might well fear that if the Bank were to restrict access to mortgages, the wider recovery could be aborted.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
Life & Style blogs
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
- 1 Rarest Beanie Baby of them all could be sold for £62,500 on eBay
- 3 Driving while dehydrated can be just as dangerous as drink driving, study suggests
- 4 Farmer told to tear down mock-Tudor castle after hiding construction behind hay bales
- 5 One Direction: Louis Tomlinson launching his own record label, has already 'signed two acts'
£18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...
£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...
£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...
£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...