Friday, 24 September 2021

Agents and surveyors disagree over ‘housing bubble’

THE Bank of England’s Financial Policy Committee should consider limiting annual house price inflation to five per cent in order

THE Bank of England’s Financial Policy Committee should consider limiting annual house price inflation to five per cent in order to prevent another housing bubble according to recent research of housing professionals.

The survey, carried out by the Royal Institution of Chartered Surveyors (RICS), also recommended the measure to curb reckless bank lending and a dangerous build-up in household debt.

With excessive price growth and high mortgage lending having led to a vulnerable banking sector, specific policy on limiting growth is needed, they say.

Such a policy could be implemented with caps on elements such as 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.

A RICS spokesman said: “Sending a clear and simple statement to the public that the Bank of England will not tolerate house price rises above five per cent would help restrict excessive price expectations across the country.

“This policy 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 were used in Canada between 2008 and 2012, during Mark Carney’s tenure as the Bank of Canada Governor. At this time, 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. It is widely acknowledged that these measures significantly eased the pressure on the nation’s market.

The spokesman said: “The only difference between what has been done before in other countries and what the Bank of England could implement is that of transparency. Public confidence is central to the success of this strategy and it is vital that any 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, five 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.”

However some leading estate agencies have disagreed with the idea.

Michael Fiddes, head of agency at Strutt & Parker, which has an office in Pangbourne, gave his reaction to the announcement.

He said: “Today’s surprise announcement by RICS, suggesting a cap on house price growth as a way of tackling economic risk taking and debts, is a facile one. As a member, I am concerned that RICS has shown a lack of understanding of the housing market.

“It is important to realise there is not a uniform property market in the UK. To understand the market, it is imperative to consider all sectors and all geographical areas, and London and the south east have seen rises greater than the rest of the UK.

“Although there is talk of a price bubble — which I believe is hyperbole anyway — it doesn’t feel like that across all areas of the UK.

“The London market, which has seen the greatest price surge, has lots of cash buyers and the RICS policy suggestions do not affect these types of purchasers.

“Trying to limit areas that are seeing the highest price growth means other regions may suffer as a result. If you try to cap house loan to income ratios, an instrument that RICS is suggesting, all you’re doing is distorting the natural movements of the market. I don’t believe that trying to influence the basic laws of supply and demand is the right way of tackling the problem.

“If a bubble is being created, one of the main causes is the Government’s help-to-buy scheme.

“What we need to do is see a stable market where housing is affordable and if we can get the supply and demand levels correct, then a free market will find its own level.

“It feels like RICS is proposing a remedy to the help-to-buy, but you cannot cure a wrong with another wrong.”

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