Factbox-How can UK regulators cool house prices?
06-25-2014
LONDON
(Reuters) - British house prices have risen by about 10 percent over the past year, and in London, gains are almost double that rate.
The Bank of England's watchdog charged with preventing asset bubbles publishes its latest report on Thursday and is expected to set out measures to rein in the housing market.
The following are steps that regulators and government have already taken and further steps they may take.
MEASURES ALREADY TAKEN
- Underwriting rules: Tougher rules for mortgage lenders came into force in April, requiring stricter checks on a borrower's ability to repay their loans. A decline in mortgage approvals in February and March could be a sign that banks were already taking a more conservative approach.
- Funding for Lending: in January, the Bank of England stopped giving incentives to banks to issue mortgages under its flagship FLS plan. That plan was implemented in 2012, when the housing market and the wider economy were floundering.
POSSIBLE NEW MEASURES
- Bank capital: the FPC could force banks to hold more capital to cover riskier home loans, to make them think twice before lending the money. This is seen as a major step - the full impact of which is uncertain - and it may be slow to have an effect.
- Affordability: Under new mortgage rules, borrowers have to show they can repay the loan even if interest rates rise 3.5 percentage points or more above the lender's standard variable rate. The FPC could recommend a higher level, especially now that BoE Governor Mark Carney has said interest rates may rise sooner than markets had been expecting.
- Help to Buy: The government last year began guaranteeing mortgages worth up to 95 percent of the value of a property, to help first-time buyers unable to afford big deposits. The FPC could recommend that the government lower the ceiling for properties qualifying for the plan, now set at 600,000 pounds ($1.02 million). But early data suggest most homes bought using a Help to Buy mortgage are worth much less than the ceiling, and few have been in London.
MORE RADICAL OPTIONS
- Mortgage caps: The FPC could recommend caps on the size of mortgages in relation to the price of a property or a borrower's salary. Shorter mortgage repayment periods is another option. Steps like these have been taken in countries such as Canada. However, they would not stop cash purchases, which are helping to fuel sharp price rises, especially in London. UK finance minister George Osborne has said he will give the Bank powers to cap home loans in less than a year, a sign of political backing if the BoE wanted to recommend such curbs immediately.
- Stamp duty: The government has already raised the tax on property purchases at the top end of the market. Hiking the levy in the mass market would be deeply unpopular, and a general election is coming in 2015. It would require action by the government rather than the BoE.
- Interest rates: Raising interest rates is considered a blunt instrument for knocking down housing bubbles, but the BoE has signalled the economic recovery is broadening and gathering steam, so a rate rise in coming months is possible anyway.
(Reporting by Huw Jones; Editing by Larry KIng)