Controlling rising house prices
Should the government intervene to control rising house prices?
According to the Organisation for Economic Co-operation and Development (OECD), the UK government should consider placing restrictions on its Help to Buy scheme as property prices across the UK continue to rise.
The OECD has pointed out that UK property prices are soaring relative to rents and household incomes.
They have suggested “timely measures” are taken by government in order to prevent the housing market from overheating.
Help to Buy was launched in two parts; the first was launched in England last April and allows buyers to put down a deposit of 5% of a newly built property’s value.
Part two of the Help to Buy scheme was introduced across the UK last October. It offers a government guarantee against losses for lenders who are prepared to offer mortgages to people with only a small deposit.
Since this scheme started, average property prices have started to rise quite sharply.
Land Registry figures show a year-on-year price rise of 5.6% as at March, but figures from lenders suggest double-digit housing price growth, particularly in London and the South East where demand for property is much stronger.
It is important not to underestimate the importance of rising property prices as a contribution towards securing economic recovery.
When house prices are going up, consumers tend to feel more confident and are more likely to spend money on the High Street, and on other goods and services.
We have come across several examples recently where individuals have ‘made’ more money from the rising value of their property in the past twelve months than they have earned from employment.
While this is of course notional money, that could only be realised by selling the property, it does deliver a confidence boost and make economic recovery more likely than before.
The government and Bank of England could take steps to control rising house prices, but for now we suspect they are quite happy to watch house prices float higher, at least until the economic recovery feels a little more secure.