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Housing price rises should be capped at 5% a year


The Royal Institution of Chartered Surveyors (Rics) has argued that the Bank of England should cap house price rises at 5% to prevent another housing bubble.

Rics has warned that house prices are rising at their fastest levels since their peak in 2006, raising fears that the market could need ‘calming’ in order to avoid the potential of creating another housing bubble through reckless lending and a build-up of consumer debt. The organisation believes that if caps were put in place to limit inflation on house prices, this would rein in consumer and lender expectations and reduce risky lending from mortgage providers.

Under the proposed regulations, if the FPC believes that a new bubble is emerging, then they would be able to direct the Prudential Regulation Authority to act by forcing lenders to reduce risk on some mortgages, essentially making high loan-to-value mortgages more expensive, and therefore less desirable.

One of the factors believed to have caused the rise in housing prices is the government initiative ‘help to buy’ scheme, which makes it easier to purchase newly built homes by lending 20% of the mortgage value to consumers. This has been reflected in recent reports which show lending to first-time buyers increasing by 41% over the last year, leading to Vince Cable, Business Secretary, calling for the chancellor to delay the second phase of the ‘help to buy’ scheme.

Mike Carney, Bank of England Governor, has previously claimed he is prepared to take action to prevent a housing bubble, however, such a move would clash with the ‘help to buy’ scheme, meaning that it still remains unclear exactly what action will actually be taken.

If you feel you need any advice on your housing investments, just type your query into the question box and one of our financial advisors will be able to give you expert advice within 60 minutes*.

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