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Govt urged to limit house price boom

Govt urged to limit house price boom

Category: Mortgages

Updated: 13/09/2013
First Published: 13/09/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

One of the UK's leading surveyors' groups has urged the Government to stop house prices rising by more than 5%.

The Royal Institution of Chartered Surveyors (RICS) said the Bank of England (BoE) should consider limiting house price inflation in order to prevent an artificial price bubble, reckless bank lending and a dangerous rise in household debt.

It said the BoE could do this by placing caps on how much people could borrow relative to their income or the value of the property.

The trade body made it clear, however, that it is not proposing that home owners should face a limit on how much they can sell their home for.

"The Bank of England now has the ability to take the froth out of future housing market booms, without having to resort to interest rate increases. Capping price growth at, say, five percent is one way of doing this," said Joshua Miller, RICS senior economist.

"This 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. We believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt."

Meanwhile, in response to MPs' questions during a Treasury Select Committee hearing this week, BoE Governor Mark Carney said the bank will be monitoring the market carefully for signs of a price bubble.

He said that if the BoE was concerned, it would start supervising lenders to make sure that mortgage underwriting standards are maintained, as well as introduce higher capital ratio requirements.

House prices rising

RICS' call comes as recent surveys reveal significant price growth over the last couple of months.

According to Halifax's latest House Price Index, prices rose 5.4% in the year to August, while Nationwide's index stated prices had increased 3.5% last month when compared to a year previously.

House prices still have a way to go before reaching pre-crisis levels. According to Halifax the average price now stands at just over£170,000, compared to almost £200,000 in August 2007.

On top of this, rises in London and the South East have far outpaced those in the rest of the country, with some regions in the UK even experiencing price falls.

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