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Putting a cap on house prices

Monday, 11th November 2013

Categories: Property Prices

Author: Kris White

As the house-buying frenzy shows no signs of abating, the Royal Institution of Chartered Surveyors (RICS) has stepped into the debate, urging the Bank of England to place a cap on borrowing levels, which would be triggered once a 5% annual property price rise has been achieved.

Burst the bubble

Government initiatives such as Help to Buy, combined with more flexible and competitive lending terms re-entering the marketplace, have led some forecasters to become concerned that the UK is heading towards an artificial housing bubble. Many believe that something needs to be done to curb the trend. As first-time buyers return to the mix, but new-build schemes fail to match the numbers of potential purchasers, there is speculation that average UK house price increases could top the 5% mark this year – hence the remarks from RICS.

Regional variation

The problem with placing a blanket cap on lending when a certain percentage of growth is reached is that the state of the housing market is very regionalised. While London and the south east are experiencing exponential growth, other parts of the country are still in the midst of a housing lull, with many properties languishing on the market for months on end, despite price reductions. Any caps would, in theory, need to reflect the disproportionate activity across different regions and act as a leveller while house building has a chance to catch up with demand.

Although a Halifax survey found that house prices had risen by 5.4% over the course of a year (to August 2013), this is based on the UK average, with parts of the country experiencing just 1% growth. With regional variations skewing the results, it’s clear that there are issues that need addressing – both to stem the potential bubble in London, and to encourage growth and market movement in other areas of the country. First-time buyers should certainly be encouraged back into the marketplace, however, if there are insufficient properties to supply a growing demand, it won’t be too long before the bubble bursts.