Member Article

RICS urges limit on house price inflation in Yorkshire

The RICS (Royal Institution of Chartered Surveyors) claims that its research shows the Bank of England’s Financial Policy Committee should consider limiting annual house price inflation in the region to 5% to prevent another housing bubble, reckless bank lending and a dangerous build up in household debt.

The revelation comes hard on the heels of its residential market survey, which pointed to the Yorkshire housing market’s continuing recovery - with a 30% increase in buyer enquiries, boosted and predictions of property price rises – but warned of the risks that this could be choked off. Among the most realistic dangers are excessive price expectations.

According to RICS, disproportionate price growth and high mortgage lending is what led to the weakened banking sector of the financial crisis, meaning that specific growth limiting policy is needed in areas where recovery is fragile, such as Yorkshire, to prevent weakening.

Measures the independent professional body suggests include caps on elements such as loan-to-value ratios; loan-to-income ratios; mortgage durations; and imposed ceilings on the amount banks are permitted to lend, should prices exceed a given limit.

Peter Bolton King, RICS global residential director, said “What we don’t want to see in the region is prices rise to such an extent that they become unaffordable. For the market to work properly here, it’s vital that property is both accessible and affordable as the housing sector continues to recover.”

Joshua Miller, RICS senior economist, added: “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.”

RICS points out that such schemes were employed in Canada between 2008 and 2012, when Mark Carney was Bank of Canada Governor. Then, the national regulator gradually reduced the minimum mortgage repayment period, the amount buyers could potentially borrow in relation to their deposit and imposed more stringent credit checks. It is widely acknowledged that these measures significantly eased the pressure on housing markets.

This was posted in Bdaily's Members' News section by David Gatehouse .