RICS proposes cap on house price growth

Published:  13 September, 2013

The Bank of England's Financial Policy Committee should consider limiting annual house price inflation to 5%, according to new RICS research launched today (13 September).

Schemes such as this have been used successfully in Canada between 2008 and 2012, during Mark Carney's tenure as the Bank of Canada governor. At this time, the national regulator gradually reduced the minimum mortgage repayment period and the amount buyers could potentially borrow in relation to their deposit, and imposed more stringent credit checks.

RICS has suggested that the Bank of England could employ similar measures with caps on elements such as loan-to-value ratios, loan-to-income ratios and mortgage durations, or by imposing ceilings on the amount banks are permitted to lend, should prices exceed a given limit.

Joshua Miller, RICS senior economist, 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. Capping price growth at, say, 5% is one way of doing this.

"This cap would send a clear and simple statement to the public and the banking sector, managing expectations as to how much future house prices are going to rise. We believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt."

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