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Written by rosalind renshaw

The Bank of England’s Financial Policy Committee should consider introducing a specific policy which would limit annual house price inflation to 5% to prevent another housing bubble.

The call has come from the RICS just as one report, from website Home, says asking prices have risen more than 5% in the last year, while another – from a former economics adviser to the Government – forecasts UK house price inflation next year of 6.1% and that it will gather pace year on year. (See next stories).

The RICS says that capping house price growth to 5% via a specific policy would also limit reckless bank lending and a build-up in household debt.

According to the RICS, such a policy could include caps on loan-to-value ratios, loan-to-income ratios, and mortgage durations, or by imposing ceilings on the amount banks are permitted to lend should prices exceed a given limit.

It argues that sending a message to the public that the Bank of England will not tolerate house price rises above 5% would help restrict excessive price expectations across the country.

This policy, it says, would discourage households from taking on excessive debt out of fear of missing out on a price boom, and discourage lenders from rushing to relax their lending standards as they compete for market share.

Schemes such as this have been used elsewhere, including Canada between 2008 and 2012, during new Bank of England chief Mark Carney’s tenure as the Bank of Canada Governor.

At this time, the national regulator in Canada gradually reduced the minimum mortgage repayment period, the amount buyers could potentially borrow in relation to their deposit, and imposed more stringent credit checks.

The RICS said the only difference between what has been done before in other countries and what the Bank of England should implement is that of transparency. It said public confidence is central to the success of this strategy and any policy should be communicated to the public in an open and accessible way.

Joshua Miller, RICS senior economist, 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.

“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.”

The RICS’s call for action to prevent a house price bubble comes as the latest data from the Council of Mortgage Lenders shows that in July, new mortgage lending was £17.7bn, up from £14.9bn in June, and a 29% rise on July last year. First-time buyers took out 25,300 loans in July, an increase of 5% on June and of 41% compared to July 2012.

Buy-to-let loans increased to 15,200 in July, up 12% on June, and within this, 7,600 buy-to-let loans in July were for house purchase, up by 7% compared with June.


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    There is going to be a government led slowdown in wages and money in the economy when the new pension plans bite early in 2014, depending on the individual take up, of course.

    But with companies forced to put it in place and in many cases would therefore give lower or no pay rises to fund it. Calamity Jane gov strikes again

    • 17 September 2013 11:56 AM
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    So... are the RICS also demanding the Government rubber stamp a minimum 5% per annum WAGE increase per annum, in order to keep up with their proposed house price fixing?

    We all know that steady inflation would be ideal. But for a group who are given recognition as trusted experts in such matters to come out with such billshut is unbelievable.

    Mind you... a certain EX-member comes out with crazier MDT here and in his own woeful blog, so maybe it is just a collective affliction.

    Further evidence that the RICS think they are Gods - but of course God wouldn't value a house.


    • 14 September 2013 21:28 PM
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    Can the RICS please call for action to CAP my Utility Bills?

    • 13 September 2013 17:56 PM
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    The article has CAP in the title. Should it be re-jigged with the word CRAP somewhere.

    If a property is improved people want a return. If a good school or a large company closes an area blights.

    Could the economist get real. Not a good writer for RICS to have on board for their articles.

    • 13 September 2013 11:27 AM
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    That's the one! While it might be short term good to shove a couple of high voltage paddles on the property market to get it to jump into life the whole picture really ought to be considered. Encouraging buyers to buy is great for the industry and great for the economy but artificially propping up prices/ volumes is simply unsustainable long term.
    I am not a house price canute but I have real concerns that aided by help to buy many purchasers will buy but at the expense of saving for a pension.

    There is simply no point in trying to control price rises caused by the artificial impetus; that simply moves the problem somewhere else.

    The solution is to withdraw Help to buy and see who really can afford to buy and who is being given an unsustainable helping hand into lifelong financial oblivion. A rising market is great if it continues steady and sustained growth but invariably buggering about with the market buggers the market.

    • 13 September 2013 10:48 AM
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    Well said Wardy. The UK's housing market stopped being a simple case of supply meets demand years ago.

    I wonder if a quick inspection of the RICS's stables will reveal lots of recently bolted doors and a complete absence of horses.

    On a different note - the headline talks about RICS asking the government to do something, while the article talks about the Bank of England? They're two totally different bodies that are independent of each other.

    • 13 September 2013 10:35 AM
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    @The last ounce of credibility!
    Would that be the free market that is about to be manipulated by the government with help to buy being rolled out across the whole market?

    • 13 September 2013 09:27 AM
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    Instead on the mid month press release from Peter Bolton King we are now treated to utter rubbish from their economist. It would be interesting to know just how qualified this bloke is to pass any sort of comment on a matter that affects the whole economy.
    Perhaps this bloke should re read the chapter on interferring with a free market and the potential affects of doing so.

    I am fairly sure plenty of RICS members will be thoroughly embarrassed by this.

    • 13 September 2013 09:17 AM
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    do the RICS want to cap building materials, builder's wages, home improvements??

    I've never heard such a load of rubbish!

    How can you cap the laws of supply and demand?

    The RICS should concentrate on getting surveys done and not trying to be estate agents or economists

    • 13 September 2013 09:04 AM
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    Only lend at the age old formula of 2.5 times annual salary.

    Then watch house prices collapse from the level they are at.

    • 13 September 2013 09:02 AM
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