13th Sep 2013 05:34
LONDON (Alliance News) - The Bank of England Friday was urged by the Royal Institution of Charted Surveyors (RICS) to limit annual house price inflation to five percent in order to prevent another housing bubble.
RICS suggested the central bank use policies like capping loan-to-value ratios, loan-to-income ratios, and mortgage durations, or imposing ceilings on the amount banks are permitted to lend should prices exceed a given limit, in order to prevent price inflation getting out of control.
UK house prices have started to rise quickly again, particularly in the southeast and London, with some experts blaming a UK government scheme helping first-time buyers get a new home by guaranteeing some of the mortgage. Prices were up 5.4% on the year in August, according to the latest figures from mortgage lender Halifax.
RICS' own survey for August, released earlier in the week, showed prices rising at the fastest rate in almost seven years, while new buyer enquiries are at their highest level since the survey began.
A 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, RICS said in a statement.
It would also 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.
The property body said similar schemes have been used, citing policies used in Canada between 2008 and 2012 when the new Bank of England Governor Mark Carney was Bank of Canada Governor.
During that period, the Canadian central bank gradually reduced the minimum mortgage repayment period, the amount buyers could potentially borrow in relation to their deposit, and imposed more stringent credit checks on borrowers. It said these measures were widely acknowledged to have eased pressures on the nation's housing market.
Excessive house price growth and mortgage lending was one of the reasons British banks got so deep in trouble during the financial crisis in 2007 and 2008. Some mortgage lenders, too reliant on the wholesale money markets to fund their home loan lending, collapsed when banks stopped lending to each other, and more lenders had to be taken over or bailed out.
Bank of England Governor Carney told British MPs at a committee hearing Thursday that the bank would remain vigilant to the rise in house prices and had a range of policy options to try and control price inflation if it gets out of control. In the most extreme scenario, the central bank could force the lenders to set aside more capital, which would reduce the amount they are able to lend, he said.
Carney also said that while house prices were rising in the southeast, there were big areas of the UK yet to see any recovery in house prices.
However, Barratt Developments PLC, one of the house builders benefitting from the UK government schemes to encourage first-time buyers, had Wednesday said it was now seeing the recovery begin to spread beyond London and the South East.
By Anthony Tshibangu; [email protected]; @AnthonyAllNews
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