13 Sep

Bank of England Vigilant after RICS warning on house prices

The new Bank of England should use its powers to limit house price increases to 5% a year to "take the froth out" of price booms, says The Royal Institution of Chartered Surveyors (Rics). They also said that a 5% annual rise should trigger caps on how much people could borrow relative to their incomes or the value of the property. Rics does not recommend statutory limits but there is a general fear that house prices particularly in London and the South East are at risk of overheating. Some forecasters are suggesting increases in house prices could break through the 5% barrier this year, owing to increasing demand from first-time buyers at a time when the number of homes for sale remains low. Housing starts are still around 100,000 a year – well below what is required to fulfil demand. The Bank's new governor, Mark Carney, recently told MPs that the Bank was vigilant on house prices but that parts of the country had not seen any recovery in the housing market. From our point of view in London, we have seen residential property inflation at well above 5% for the past couple of years. I think what we all want to see is stability and to avoid the roller coaster ride of large fluctuations in price and constraints on mortgage lending. Low interest rates have assisted the recovery and avoided large scale defaults, but the prescription for one part of the country is not necessarily correct for the other parts. The UK has a complex and diverse property market and perhaps the Bank of England should look in the more sophisticated regionally biased stimuli to apply to the housing market

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