Friday 13 September 2013

Estate agents and surveyors call for house price growth cap

Rics says Bank of England should use powers to calm market as new figures suggest record rise in prices
The Bank of England should take action to cap house price rises at 5% a year in order to prevent a dangerous new property bubble, reckless lending and a build-up in consumer debt, the Royal Institution of Chartered Surveyors (Rics) says.
In the latest stark warning about the housing market, Rics – which represents surveyors and estate agents – is calling on the Bank to limit house price inflation to rein in consumers' and lenders' expectations and give a clear sign of when the Bank would use its new powers to calm the market. This week, the organisation warned that house prices are rising at their fastest rate since their 2006 peak.
If the inflation limit was breached, Rics argues, the Bank's fledgling financial policy committee, which is in charge of safeguarding financial stability, could act.
If it believes a bubble is emerging, the FPC has the power to direct the banking regulator, the Prudential Regulation Authority, to force lenders to set aside more capital against riskier mortgages, for example, which could make high loan-to-value mortgages more expensive.
Joshua Miller, senior economist at Rics, said: "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, 5% is one way of doing this."

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Rics' intervention comes amid growing evidence that the UK's housing market has started to take off, with rising consumer confidence and government stimulus schemes boosting lending and house prices. In August, the Halifax house price index showed UK homes were fetching 5.4% more than in the summer of 2012, and several property firms and estate agents have predicted that growth will top 5% by the end of the year.
Business secretary Vince Cable said this week that the chancellor should consider halting the second phase of his controversial Help to Buy scheme – which is due to begin in January and will offer taxpayer-backed mortgage guarantees – because of the risk of inflating a housing bubble.
Figures from the Council of Mortgage Lenders out on Thursday showed that the number of first-time buyer loans was up by 41% year on year, and almost £1bn was poured into new investment properties.
Meanwhile figures out on Friday from property firm LSL suggest house prices in England and Wales soared to a record high in August. The figures, which are based on all property purchases registered with the Land Registry, put the average price of a home at £233,776.
Rics said its proposed 5% cap had been chosen to take into account UK income growth, currently averaging around 3% a year, and the additional pressure on prices from a shortage of housing supply. However it said it was "not wedded" to the 5% level, and would be supportive of a "more robustly determined" figure.
Policies to tackle rising prices have been adopted in other countries, such as Canada, the homeland of the new Bank governor, Mark Carney. There mortgage terms were reduced, lending was restricted and more stringent credit checks were introduced.
Rics said greater transparency would add to the public confidence in this kind of action. Miller said a price rise 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."
Carney has said he is prepared to take action to prevent a housing bubble, a point he reiterated to the Treasury select committee on Thursday.
But any move to calm the market by forcing banks to put more capital aside against riskier mortgages, for example, could clash with Help to Buy, which is designed to encourage banks and building societies to offer loans to borrowers with small deposits.
Although the second leg of the scheme will not launch until next year, there are signs of a thaw in the market for high loan-to-value mortgages, with surveyors e.surv reporting that the number of loans granted to borrowers with a deposit of 15% or less had increased by more than 40% over the 12 months to August.
Article Source : http://www.guardian.co.uk
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