Bank of England Asked to Prevent House Price Bubble

Wednesday, 25 September 2013

It’s no secret that house prices have been on the rise over the past year. Thanks to various government lending schemes and increased confidence in the housing market, Halifax estimates that the average property price has grown by 5.4% since last summer.

This has cheered up homeowners and increased the confidence of first-time buyers - but not everybody is happy about the changing fortunes of the housing market.

The Royal Institute of Chartered Surveyors (RICS) published a report last week arguing that the Bank of England should cap house price inflation at 5%. They suggest the bank could regulate the housing market by making it more difficult to get a mortgage if house prices rise faster than 5% per annum, meaning that demand would no longer outstrip supply.

After the housing crash in 2008, which saw many people saddled with mortgages worth more than their properties, it might not be a bad idea. The spokesperson for RICS spoke to The Independent about their radical statement, saying “we believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt”.

But is the property market really on the cusp of a boom? George Osborne doesn’t seem to think so. The Chancellor recently made a speech noting that, if you adjust for inflation, house prices are still down from 2007.

Mark Carney agrees that the Bank of England should be vigilant about a housing boom, and has already aired his concerns to the BBC. It's worth noting that Mr Carney's native Canada put similar measures to what RICS are suggesting in place between 2008 and 2012.

Whether or not a boom is imminent, it’s heartening to see that the people in power are being more cautious this time around, hopefully helping to avert a dramatic downturn in the future.

Sources:

1. http://www.independent.co.uk/property/bank-of-england-urged-to-cap-house-price-rises-at-5-over-fears-of-dangerous-debt-bubble-8812668.html

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