RICS Want To Cap Property Price Increases
RICS want the Bank of England’s Financial Policy Committee (FPC) to consider limiting annual house price inflation to just 5% in order to prevent another housing bubble.
According to research by the Royal Institute of Chartered Surveyors (RICS), excessive property price growth and high mortgage lending have left the banking sector vulnerable and specific policy on limiting property price growth is required to prevent another property price bubble.
RICS have suggested caps on elements such as:
- Loan-To-Value (LTV) ratios
- Loan-To-Income ratios
- Mortgage durations
- Ceiling limits on the amount banks are permitted to lend (should prices exceed a given limit)
RICS reckon that by sending such a clear and simple statement to the public, indicating that the Bank of England (BoE) will not tolerate property price rises over 5%, would help restrict excessive price expectations across the country, preventing property prices from over-inflation.
The institution claim that such a policy would discourage individual households from taking on excessive debt, for fear of missing out on a property price boom, and such a policy would also discourage mortgage lenders from relaxing their strict lending criteria as they attempt to compete for customers.
The Royal Institute of Chartered Surveyors Schemes are quick to point out that a similar scheme had proved to be successful and significantly eased the pressure on the property market in Canada between 2008 -2012, when Mark Carney was the Governor of the Bank of Canada. There, the national regulator gradually reduced the minimum mortgage repayment period, the amount buyers could potentially borrow in relation to their deposit and imposed more stringent credit checks, avoiding a property bubble.
RICS think that the Bank of England should implement the same strategy but with a great deal more transparency, as they see public confidence as being central to the success of this type of strategy and that such a policy is 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.”
Could it be that RICS are getting ahead of themselves and attempting to control what is traditionally a cyclic event?
Property prices rise because of increased demand, there is an overall housing shortage in the UK, putting property within the premium price brackets of only those who can afford to buy them, and just dangling them tantalisingly in front of those who cannot afford to get on the property ladder. Limit property prices and it will have a knock on effect to the private rented sector and deter property investors, meaning that they would begin to look elsewhere for profit, which could see the market collapse again…
So, limiting property price growth is a sound economic solution….for who?
What do you think?
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