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House prices jump £10,000 in five weeks as Bank threatens to cap mortgages



The average property is now on sale at a new record high of £272,003 

The Governor of Britain's Bank of England, Mark Carney, listens to a question during a news conference at the Bank of England, in the City of London

The Governor of Britain's Bank of England, Mark Carney, listens to a question during a news conference at the Bank of England, in the City of London

Mark Carney, the Bank of England's Governor, said: 'We could limit amounts of certain types of mortgages that banks could undertake' Photo: Reuters

Christopher Hope
By  Christopher Hope, Senior Political Correspondent

The price of an average home increased by nearly £10,000 between April and May, the biggest month-on-month cash increase ever recorded.

Figures from Rightmove, the property website, showed house prices jumped by nine per cent over the past year, pushing up the value of an average home to record levels.

The news came as the Bank of England said that people could be stopped taking out mortgages worth many times their salary to buy new homes to cool the market.

Asking prices for homes in England and Wales increased by 3.6 per cent or £9,409 – outstripping the previous record of £8,310 in October 2012 – between April 6 and May 10.

The increase - the biggest since Rightmove started to collect house price information in 2001 - in the figures means that this month the average property is on sale at a new record high of £272,003.

A breakdown suggested fears of a nation-wide housing bubble are misplaced, with London leading the way with a 16.3 per cent year-on-year increase, compared with a more modest 4.9 per cent in the rest of the country.

The average asking price in the city is up by nearly £80,000 so far in 2014, or £4,405 a week, compared with £1,521 a week for the rest of the country.

The figures emerged after Mark Carney, the Bank of England’s Governor, said he was considering capping the size of mortgage ratios to salaries to control the market.

The Bank was also watching to see if the Government’s Help to Buy scheme – in which the Government gives people taxpayers' money to cover deposits on homes worth up to £600,000 - was fuelling the increase.

In March the Bank warned that mortgages larger than four times borrowers’ incomes accounted for the highest share of new home since 2005.

House prices have jumped by nine per cent over the past year (ALAMY)

Mr Carney suggested that the Bank could impose a new “affordability test” for borrowers as well as reining in Help to Buy.

He told Sky News’ Murnaghan programme: “We could do more, we could take steps around affordability to test whether or not individuals can test mortgages at much higher interest rates.

“We could limit amounts of certain types of mortgages that banks could undertake, we could provide advice - the Chancellor has asked us if we would provide advice on changing the terms of Help to Buy - all those things are possibilities and we will consider them all.”

Mr Carney raised the prospect of people being stopped from taking out mortgages which were more than four and a half times the size of their annual salary.

He said: “The level of higher loan to income mortgages, ones above four and a half, five times loan to income, potentially could store up bigger problems for the future.

“And we need to be careful, we need to be calibrated, we need to be proportionate, if we were to suggest some adjustments to the amount of these types of mortgages that banks should underwrite.”

Mr Carney said the housing market potentially represented the “biggest risk” to the economic recovery.

With approvals for large mortgages on the increase, he expressed concern about the dangers of another “big debt overhang” building up.

The Government accepted that Mr Carney should be allowed to intervene if he was concerned about a house price bubble and its effects on the economy.

David Cameron, the Prime Minister, said Mr Carney had the powers he needed to prevent a new housing “bubble” developing.

He said: “We have given the Bank of England the duty to make sure that bubbles are dealt with in the economy. They have all the powers they need to do that.”

Nick Clegg, the Deputy Prime Minister, said he would back Mr Carney if “we need to pare back some of the Government schemes, like Help to Buy”.

Lord Lawson of Blaby, a former Chancellor, said he would be quite sure the Government would accept the advice if Mr Carney called for the Help to Buy scheme to be scaled back or ended.

The Organisation for Economic Co-operation and Development has also recently sounded a warning that action may be needed to cool the market, calling for curbs on the Government's Help to Buy scheme.

The issue of house prices and the problems that young people have on buying a first home is rapidly rising up the political agenda.

The sheer cost of getting on the housing ladder has forced a generation of young people to have to rent properties from landlords, rather than buy a first home.

Last month Ed Miliband, the Labour leader, pledged to cap rent rises in the private sector and force landlords to offer long-term tenancies.

Mr Miliband said that the estimated nine million people now living in rented accommodation had been “ignored for too long”.

He said: “The next Labour government will legislate to make three-year tenancies the standard in the British private rented sector to give people who rent the certainty they need.”

In a report on housing last year, the Royal Institute of Chartered Surveyors said: “All political parties should make a commitment not to introduce rent controls in the private rented sector, as this would reduce the level of supply in the rented housing market at a time when the country is becoming more dependent upon the sector.”

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