Can Bank of England really freeze UK house prices for five years?

 

House prices across the UK are continuing to rise despite a slight slowdown recently, and a new report has proposed a freeze on property prices to rebalance the economy.

A target for zero house price inflation has been put forward by think-tank the Institute for Public Policy Research (IPPR) in a bid to end the country’s reliance on property investment and rising house prices.

The organisation believes the Bank of England should impose mortgage restrictions on homebuyers for the next five years or more, as a way of preventing house prices from rising any further, which would improve affordability alongside the government’s measures to increase housebuilding to ease under-supply.

By restricting mortgage lending, requesting higher deposits and creating lower ceilings on loan to income ratios, the think-tank believes real-term house prices would decline by around 10%, while rising wages would mean that property becomes a more affordable asset for a majority of people – like it was before prices started climbing rapidly 30 years ago.

A sustainable growth model?

Between 1980 and the 2008 financial crisis, property prices in the UK rose tenfold, with the average home now costing eight times the average household income at around £215,444. This has prompted a significant lifestyle change in terms of homeownership with today’s young people buying their first property later than ever, and more people renting or staying in the family home for longer.

Grace Blakeley, an IPPR research fellow and author of the discussion paper, said: “Since the 1980s, the UK’s business model has rested on attracting capital from the rest of the world, which it has channelled into debt for UK consumers. The 2008 crisis proved that this is unsustainable. We need to move towards a more sustainable growth model, one built on production and investment rather than debt and speculation.

“To do this we must break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy.”

Unintended consequences

However, the move could prove extremely controversial as the country’s millions of homeowners and investors could be set to lose out if these measures were to be put in place – particularly those who have been relying on their property as a nest egg to fund their retirement.

Mark Hayward, chief executive of NAEA Propertymark, commented: “Excessive house price growth is certainly not something we want to see, but homebuyers make purchases on the basis of capital appreciation and the belief that their investment will be protected and enhanced.

“We encourage all measures to help first-time buyers get onto the housing ladder, but with property transactions at an already low level, this sort of tampering could have unintended consequences.”

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Can Bank of England really freeze UK house prices for five years?

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