Britain should support the greater use of tax, rather than interest rates as a means of controlling housing market volatility, according to the Royal institution of Chartered surveyors (RICS).
In a review of housing in England and Wales, ‘Housing the Nation: the RICS housing manifesto’, the property and construction organisation made a number of recommendations aimed at stimulating debate in the future of the housing market.
RICS believe that as approximately 10% of the housing stock changes hands annually, and interest rates are used as the primary tool for controlling housing inflation, 90% of householders are penalised because 10% are paying too much for their housing. Michael Newey, chairman of the RICS housing policy panel, said: ‘We are saying that interest rates are the wrong tool to control inflation in the long term. If you assume that sometime in the next 10, 20 years, or even sooner, we enter the Euro zone, we will not be able to use interest rates to control house price inflation.’
As an alternative, RICS looked at Stamp Duty. Newey said: ‘House price inflation is rarely over the entire country, it is usually focused around localised markets. We say that if Stamp Duty works as a vehicle to increase regeneration of run down areas then why not use increasing Stamp Duty in localities to dampen down house prices?’
On the development of housing finance, RICS believe that stability will be further enhanced by longer term fixed rates. Newey said: ‘We had a number of ideas on this. First, is a product that appears on the Continent, which is a fixed rate mortgage over 20 years, with portability so there are no huge penalties for moving house.’
This style of mortgage already exists in the UK, from Standard Life Bank. The lender currently offers the ‘Freestyle mortgage’, a 25-year fix at 6.49%. John Gill, financial director at Standard Life, said: ‘In an uncertain world, the need for homeowners to be able to plan ahead with peace of mind means that long-term fixed rate mortgages is an important consideration. At present, UK interest rates are at an historic low. As always the future remains unpredictable.’