First-time Buyers

Call for limit on house price rises

Written By:

The Royal Institution of Chartered Surveyors has called for a cap on property price inflation.

RICS wants the Bank of England to limit house price rises to a maximum of 5% per year.

The group says that a 5% annual increase in house prices should trigger caps on how much people can borrow relative to their incomes, rather than suggesting a limit on how much sellers can ask for their property.

The Uk housing market has turned a corner in the last three months, with the number of first-time buyers increasing, total mortgage lending growing strongly and average house prices increasing in many parts of the country.

Joshua Miller, senior economist at Rics, 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,” he said.

“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.”

RICS chief economist Simon Rubinsohn told the BBC that the cap was more of a “speed bump” for the housing market “so people wanting to enter the market are aware of some of the risks”. 

But, Sir Howard Davies, former deputy governor of the Bank, poured cold water on the idea. “The problem is that we are not building enough homes,” he said.

Ben Thompson, managing director, Legal & General Mortgage Club, said:

“There is clear logic to wanting to stop out of control house price growth in so much as this would ultimately enable younger people to buy their first home at a younger age and would limit the amount of household debt taken on, enable a better savings culture and perhaps deliver other benefits too.

“However instead of placing arbitrary caps on house price growth, the UK ought to solve the supply and demand problem in the housing market by building many more new homes. This would deliver the same benefits in a more natural way with less regulatory intervention.”