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RICS: Bank of England should limit house price growth to 5% a year

The Royal Institution of Chartered Surveyors has called on the Bank of England’s Financial Policy Committee to consider limiting annual house price inflation to 5 per cent to prevent another housing bubble.

It also recommends the FPC, which has the ability to intervene if market risks begin to emerge, limit reckless bank lending and a “dangerous” build up in household debt. RICS says it is not “wedded” to a 5 per cent cap, but it says it wants house prices to rise in line with nominal incomes, which have grown by around 3 per cent a year since the 1990s.

The FPC has the power to make recommendations to the Prudential Regulation Authority to cap loan-to-value and loan-to-income ratios if it feels necessary, although this is not binding.

However, it does have the power to force banks and building societies to hold more capital on loans against property or, on a more granular level, it can force banks to hold more capital against higher LTV lending, for example.

RICS has called on the FPC to recommend limiting loan-to-value ratios, loan-to-income ratios and mortgage durations and has even called on the committee to impose ceilings on the amount banks are permitted to lend, should prices exceed the threshold. RICS argues this could also be done on a regional basis, rather than a uniform approach for the entire UK.

This, it says, would discourage households from taking on excessive debt and would discourage lenders from rushing to relax their lending criteria in order to grab market share.

According to the latest house price statistics from Halifax, house prices increased 5.4 per cent year-on-year in August, from £160,292 to £170,231.

There have been many warnings that a house price bubble is emerging and it has been argued this will be amplified by the launch of the second part of the Help to Buy scheme, a £130bn mortgage indemnity guarantee scheme, in January.

RICS senior economist Joshua Miller says: “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 percent 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.”

Yesterday, BoE governor Mark Carney told the Treasury select committee there needs to be an open debate about introducing loan-to-value caps to curb risky lending.

He rejected suggestions the housing market was booming by pointing out it was performing very differently across the country.

Chancellor George Osborne wants the financial policy committee to have the power to cap LTVs but the FPC rejected it last year on the basis it should be a decision for Parliament. 



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  • Hugh Wade-Jones 16th September 2013 at 1:04 pm

    It’s a free market and should be allowed to act as one. The vast majority of properties are being bought to live in, there is little short term speculation and in some areas of the country still large demand. Low interest rates are certainly propping some prices up but they will only be risen as and when the economy improves so would think bar some small and ST corrections one will balance the other out.

  • James Lindon-Travers 13th September 2013 at 3:57 pm

    Joshua Miller’s idea is astonishing – RICS members are struggling to value the current feeble level of post financial crisis property transactions let alone become enforcement officers for yet another form of state imposed regulation. Will he will be dusting down his brown suit and reaching for his clipboard to help out on the front line? Probably not……..

  • colin hodgkinson 13th September 2013 at 10:51 am

    Dont worry. When the government scheme for used properties kicks in in Jan, this will drive rents down as clients will buy rather than pay someone elses mortgage. landlords will sell as yields diminish and more property will become available. with 95% deals available why rent!

  • Chris Hulme 13th September 2013 at 9:59 am

    “Representing surveyors and estate agents”….. not sure this stance is doing either….
    Given its the surveyors that value properties (primarily for lenders), surely it is THEY who are responsible for professional valuations on property and not for any other body to intervene…?
    In addition, how then do you value home improvements? or dilapidated properties? or exceptional properties? or renovations? or self builds?
    Moreover, if valuation is a done deal, when considering mortgages in the future what will we need surveyors for going forward?
    I don’t think RICS has thought this through…..

  • Jonathan Burridge 13th September 2013 at 9:26 am

    Interesting idea, but how would it be policed? I can see a very quick change in attitude by home owners and their agents being that property prices WILL rise by 5% a year]…..”Des res, Mr Smith, des res. Well, you bought it 3 years ago for £100,000 and according to RICS that means it is worth £115,762. There is no need to accept offers any more Mr Smith, the Government say so”. 🙂

    Now, the capping is not bad idea and actually that level of growth seems to be conservative, if you use the Nationwide House price index you can see that prices have risen by over 100% every decade since their records began, this would restrict that grown by half.

    Moreover, in a period of a healthy property market the restrictions would probably deter those looking for a quick buck.

    As interesting an idea as it may be I cannot see how it could be implemented and controlled longer term.

  • Corby Macdonald 13th September 2013 at 7:55 am

    “My opinion on the day” is that the RICS should spend more time, on some of the fundamental problems that their members have when valuing property! I have never known a period when properties are valued “Subjectively” rather than “Objectively” There is nothing worse for a remortgage, when a client paid £135,000 for a property 2 years ago, which was reduced from £160,000, to be told its now worth £125,000. The reason, is the subjective valuation of well if you sold it the most you would get for it is £125,000 so the buyer wouldn’t pay stamp duty! This is wrong, the valuation of the property should be done objectively, because if I am remortgaging I am not looking to sell. Then we come to the system of trying to get a valuers decision overturned, hence my tongue in cheek start, because we have all heard it and in my years as an adviser, I have only had one change his mind and that was because he did a drive by and the house had been extended to the rear. Sorry as a broker, Surveyors have too much say in the market. I do as much research as possible for looking at values of properties, Rightmove Comparables, Zoopla and often speak to local agents as well, because, I do not get paid if I don’t get the business through, so I ensure I do as much research as I can.. I do not make numbers up and when they are downvalued it is frustrating because I have wasted my time and money, but, even more when I know it stands up, but, it has been to subjective valuing practices. It is also galling that the appeals programme is fundamentally flawed, because, it still remains the “opinion on that day” of the valuer that is adhered to.