Getty Images
Balance sheet
Rising house prices might be good
news for homeowners, but not necessarily good news
for the economy. Measures may still be needed to
smooth out prices over the long term.
analysis
and there is talk of increasing CouncilTax on
unoccupied properties.This could assuage
overseas demand,’ he says.
Parsons believes policymakers have two
possible tools at their disposal to take the froth
out of the London market without sending
prices into a dangerous downward spiral.
‘The government could reduce the upper
limit on Help to Buy to £250,000.Most Help
to Buy mortgages are less than £250,000, but
an official reduction in the upper limit would
send a strong psychological message.They
could also announce their intention to scale
back mortgage interest relief for buy-to-let
investors.That sector of the market is centred
on London and now accounts for at least 14%
of all mortgages, up from 9% in 2008
1
,’ he says.
The Building SocietiesAssociation (BSA)
also believes the market can be influenced
by robust messages from policymakers.‘The
introduction of loan-to-income limits
and a greater focus on affordability sent
a clear message from the Bank.To mortgage
lenders it said “We are not afraid to take
action if we need to”, and to consumers
it said “Let’s pause for breath a little”,’
says Paul Broadhead, head of mortgage
policy at the BSA.
The BSA suggests that a more coordinated
approach to the housing market would help
to smooth out prices over the long term.
‘More needs to be done to balance
supply and demand,’ says Broadhead.‘We
need more homes that people want to
live in, built in places that people want to
live. Owner occupancy has fallen from
73% to 65% over the past decade and the
private rental sector has overtaken social
housing.These are very big shifts.The
government needs a coordinated approach
and a coherent policy to address them. But
at the moment, housing is handled by four
different government departments.
The situation is delicate. Regional shifts
are wide, the market is still well below
its peak in many parts of the country and
there are ongoing concerns about the
link between rising prices and consumer
confidence.‘The housing market has a
massive effect on consumer confidence.
When prices go up, people feel better,’ says
Parsons. Not everyone agrees, however.
‘There is a widespread belief that rising
prices are good for the economy. But rising
prices mean that people’s cash is locked up
in the housing market, which is detrimental to
the wider economy,’ says Capital Economics’
chief property economist Ed Stansfield.‘What
we need is a decade of stagnation to improve
affordability.The Bank needs to tighten
mortgage regulation even more and impose
stricter caps on loan-to-income multiples.’
Most economists suggest that, even if
increasing prices feed into the consumer feel-
good factor, employment, rising income and
job security have a larger role to play. If wages
are rising and people feel more secure, they
may well be prepared to pay more for their
home. But they would also be able to afford
it.And that would mean a more sustainable
housing market for the long term.
l
Your home may be repossessed if
you do not keep up repayments on
your mortgage.
1 Council of Mortgage Lenders
THE INVESTOR
|
17
20%
11%
the gulf in UK house prices
Prices at the end of the first quarter
of 2014 were 20% above their
previous peak in London
but still 11% below their peak
in the North-West
