Should House Prices be Capped?

by Mark Johnston

Should House Prices be Capped?

The housing market started the year still in slump mode however there are now fears that a new bubble is being stoked.

According to the Royal Institution of Chartered Surveyors (RICS) most recent report, rising house prices are spreading across the country and they also added that more surveyors saw house prices rise in July this year than in any month since November 2006, as increases in property values spread to the whole country.

housesRecent figures from Halifax’s house price index showed house prices are 5.4 per cent, or £10,000, which is higher than last summer.

Howard Archer, at analysts IHS Global Insight, said “We expect house prices to rise by around 2.5 per cent over the final months of 2013 and to then grow by around 7 per cent in 2014.”

Most lenders, estate agents and property websites have also been reporting signs of confidence flooding back into the housing market in recent months.

It seems then that fuelled by cheap mortgages and the Government plugging its deposit boosting Help to Buy scheme, the property market has swung back into growth.

Mortgages are much more affordable for buyers now compared to last year, which has opened the door to thousands of would be buyers who have been shut out of the market.

The fact is owning a home is an emotional desire, a must have aspiration for most Britons, and the demand for property in Britain remains high.

Therefore many property commentators have stated that if consumers can get a good deal and a good rate on a mortgage, then now is a good time to buy provided they accept prices may fall again in the short term.

All this said fears have been raised that a recent surge in housing market activity will result in borrowers over stretching themselves.

So amid fears the housing market is heading for a ‘bubble’ surveyors have argue that
a five per cent cap should be placed on annual property value growth.

Many experts believe that the Bank’s Financial Policy Committee, which underpins stability, should send out a clear message that they 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.

The Royal Institution of Chartered Surveyors (RICS) also suggested the Bank of England could put the brakes on house price growth by imposing a ceiling on the amount of money banks are allowed to lend.

However, the Council of Mortgage Lenders (CML) recently said that talk of a housing boom was ‘premature’. This is because while the housing and mortgage markets are showing ‘some initial signs of recovery this summer’, current house sales are still at lower levels than they were when the UK was recovering from a downturn in the early 1990s.

In conclusion, whether or not there is a property bubble looming there are still big potential stumbling blocks for the property market such as the interest only mortgage crackdown, high property costs, austerity measures and the Euro zone crisis to contented with!


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