DANGER: Even estate agents think house prices rising too fast
Calls to cap house price rises are clear sign of housing bubble
RICS is shouting from the rooftops – are the authorities listening?
No more ‘Help to Buy’ we need ‘Help to Build’
Clear signs of housing bubble: The RICS has issued an unprecedented call for a cap on house price rises. This suggestion, from the industry most closely associated with the housing market, clearly indicates that house prices are in bubble territory. It has been clear for months that the mortgage market is taking off again with many more people chasing up property prices.
RICS is ‘shouting from the rooftops’ but Bank of England not listening: The Bank of England has promised it will not allow a house price bubble to develop – those words ring hollow when the bubble is already here and yet the Bank’s forward guidance insists interest rates must stay at emergency low levels. Mervyn King, in his 2012 Today Programme lecture, lamented the fact that the central bank had not done more to warn of the unsustainable nature of excessive borrowing. He said “With the benefit of hindsight, we should have shouted from the rooftops” about the dangers in the system. Now the RICS is shouting about the dangers of a housing bubble, but who is listening?
We have not learned lessons of the last crisis: Lord King stressed that the Bank of England needed to learn from the financial crisis and said “our role will be to take away the punchbowl just as the next party is getting going”. Well the party is clearly well underway but the Bank remains complacent and promises it will keep rates down even as Funding for Lending and Help to Buy are further increasing house prices.
Not sure a price rise cap will work: If the Bank is not willing to raise base rates, what else could be done? The idea of capping house price increases is not really practical, but there are other measures.
1. Abandon the second phase of Help to Buy. The 2014 plan to force taxpayers to underwrite high loan to value mortgages exposes taxpayers to the risk of substantial losses, whilst also further inflating the housing bubble. This scheme needs to be focussed on building new homes, not increasing demand for existing properties.
2. Encourage new construction – ‘Help to Build’. Special incentives for house-building would be a better use of taxpayers’ money than underwriting mortgages. This would increase supply and help reduce upward price pressures.
3. A curb on lending criteria. Currently, there is a resurgence of 95% loan-to-value mortgages, which are exposing borrowers to significant risks when the housing bubble bursts. Stricter criteria for responsible lending (such as 85% maximum LTV) would help to curb some of the excess.
Having just endured such a major crisis that resulted from over-exuberant lending and borrowing and rising property prices, we must not make the same mistakes again.
What do you think? Who’s right on the housing market, the Bank of England or the Chartered Surveyors and Estate Agents?