6th June 2014
Chancellor George Osborne has told the Bank of England it ‘should not hesitate’ to cool the housing market should soaring property prices become a risk to the UK economy.
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Speaking ahead of the publication of the International Monetary Fund (IMF) latest assessment of the UK economy, which is expected to criticise the government’s recovery strategy, Osborne (pictured) said he expects to agree with the IMF on the potential risk of property price rises.
‘We need to be alert to the build-up of debt in the housing market, we need to be alert when we see house prices rising,’ Osborne told BBC Radio 4’s Today programme.
He added that the Bank’s Financial Policy Committee (FPC) has been given tools to step in and cool the property market. In particular the FPC has been given the ability to rein in the government’s Help to Buy (HTB) scheme, which offers equity loans and mortgage guarantees to those with just 5% deposits to purchase homes with a value of up to £600,000.
The measures at the FPC’s disposal to limit the scheme are reducing the limit on the property price and making loans more expensive by insisting lenders pay increased fees to the Treasury for the government guarantees being offered under the mortgage guarantee part of HTB.
Although the FPC’s first review of HTB was supposed to be after three years, there is speculation it could step in sooner as property prices soar and it could unveil controls on mortgage lending on 17 June, including a loan-to-income limit. Both RBS and Lloyds have already imposed a loan-to-income limit in the past few weeks, limiting home loans of £500,000 or more to four-times income.
‘We have created – this government, me as chancellor – the mechanism to deal with [an overheating property market],’ said Osborne. ‘We have given the Bank of England the tools to do the job and they should not hesitate to use those tools if they see these developments turning into a risk for the British economy.
‘We need to keep a close eye on these developments and as and when we think they are a risk to our economy we should act, and I have created the mechanisms to do that.’
The latest house price data from Halifax shows the average property has increased in value by 8.7% since May last year and is up 3.9% in just one month to an average price of £184,464.
Stephen Noakes, Halifax mortgages director, predicted house prices would begin to regulate in the medium to longer term as supply increases to meet demand.
‘On an annual basis housing demand is still strong and continues to be supported by a stengehening economic recovery. Consumer confidence is being boosted by a rapidly improving labour market and the low interest rates, although growth in average earnings still remains weak,’ he said.
‘However, there are signs of a revival in housebuilding which should bring supply and demand into better
Any restriction on the HTB scheme is unlikely to restrain house prices in London, where the property bubble is growing ever larger with values increasing 17% in one year according to Halifax. Analysis of the government’s HTB data by the Council of Mortgage Lenders show just 0.6% of all property transactions in the capital were supported by a HTB guarantee and that figure would be even lower if cash transactions were included; 60% of property purchases in the capital are done in cash.
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