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Should the Bank of England target 0% house price growth?

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  • 13/07/2018
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Should the Bank of England target 0% house price growth?
Brokers have taken issue with a think-tank’s call to hand the Bank of England new powers to help freeze house prices.

The Institute for Public Policy Research (IPPR) this week suggested that the Bank of England should be given the additional target of 0% house price growth, to go alongside its current 2% inflation target.

It called for the Bank of England to have the power to demand buyers deliver higher initial deposits, with stricter limits on loan-to-income ratios.

In its paper, On Borrowed Time: Finance and the UK’s current account deficit, the IPPR suggested that the central bank should aim to keep house price growth effectively frozen for five years in order to give salaries a chance to catch up and “break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy”.

The idea has been given short shrift by intermediaries however.

“Completely unthought out nonsense”

Stuart Gregory, managing director of Lentune Mortgage Consultancy, argued that the Bank of England already has more than enough powers in its arsenal, and suggested that “sometimes think tanks think too much”.

He added: ‘Freezing house prices would cause havoc and would restrict onward options for borrowers and lenders alike. What about the lives of property owners, who would be restricted to the point that they may not be able to move home if they are relocated by their employer?”

James Mole, independent financial adviser at Gingko Independent, described the idea as “drivel”, stating that think tanks are guilty of coming out with “completely unthought out nonsense time and again”.

He added: “The idea that that somehow the Bank of England could or would artificially influence the housing market on such a large scale is ridiculous. Just think of the knock on effects on the other markets, both UK and worldwide.

“The solution to a housing shortage is simple, we need to build more houses. In order to do that the government need to either incentivise developers or become developers.”

It might work in London

However, James McGregor, director at MESA Financial Consultants, argued that for the capital it would actually be a welcome move.

He explained: “With less buy to let finance accessible, additional stamp duty for second homes and the new tax changes coming in for landlords there has definitely been a decrease in a certain property type over the last couple of years. For example flats in Twickenham, where we are based, have already reduced 5% in the last year and I don’t see any let up here.

“I do not think it is relevant in the rest of the country, which would be the biggest problem if this power was given to the Bank of England,” he concluded.

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