Labour considers plans to restrict house price inflation

By Emma Lunn

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Apr 16, 2019

Labour could restrict mortgage lending or set a house price inflation target for the Bank of England in a bid to close the gap between property prices and average incomes.

According to a report in The Guardian, shadow housing secretary John Healey is considering whether the Bank of England should be mandated to cap house price growth, in the same way it’s targeted to keep inflation at a certain level. In theory, a target could vary from region to region.

Rather than using interest rates to keep house price growth down, Labour is considering whether curtailing the availability of mortgages would achieve the desired response. This would involve granting greater powers to the Bank of England’s financial policy committee.

The bank already goes someway to control mortgage lending with a loan-to-income ratios capped at 4.5 times earnings for 15 per cent of new mortgages.

The proposals are part of Labour’s plans to tackle the housing crisis following a decade of house price inflation which has prevented many people from buying their first home.

According to Land Registry data the average UK house price in April 2009 was £155,852, but stands at £228,147 now. Wages have not risen at anywhere near the same rate, pricing a growing number of people out of the property market. The average house now costs eight times the average wage, compared to just four times 20 years ago.

Emoov and Properganda PR founder Russell Quirk says state intervention in markets has never gone well.

He says: “Look at Venezuela and the oil prices – the country is bankrupt now. The property market should be left to it own devices, the natural flow of the economy, and supply and demand.

“State intervention wouldn’t account for all the idiosyncrasies of the property market. It would be using a hammer to crack a nut. One issue is that Land Registry figures are six months old by the time they come out. So, if the government took action to stop the market overheating, it would be acting on a snapshot of the market six months ago.”

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