Bank of England urged to put 5pc cap on house price rises

A FIVE per cent cap should be placed on annual house price growth amid fears that the country is heading for a “bubble”, surveyors have suggested.

The Bank of England should consider limiting yearly house price inflation to five per cent in order to take the “froth” out of any future booms and put a stop to any “dangerous build up in household debt”, said the Royal Institution of Chartered Surveyors (Rics).

The body argued that sending out a clear message that the Bank’s Financial Policy Committee, which underpins stability, will not tolerate house price rises above a certain limit would restrict any over-the-top price expectations from sellers and discourage buyers from taking on too much debt due to fear of missing out on a house price boom.

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Rics suggested the Bank could put the brakes on house price growth by, for example, imposing a ceiling on the amounts of money banks are allowed to lend.

It could put caps on the term of a mortgage, the amount people can borrow in relation to their deposit or the sum they can borrow in relation to their income, Rics argued.

Fears have been raised that a recent surge in housing market activity will result in borrowers over-stretching themselves. Recent figures from Halifax showed that house prices are 5.4 per cent higher than last summer and Rics has said that 40 per cent of surveyors have been seeing house prices rise rather than fall, the highest proportion in almost seven years.

Bank of England governor Mark Carney recently said he is “acutely aware” of the potential threats and said the Bank will clamp down on mortgage lending if needed.

Rics senior economist Joshua Miller 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.”

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