The proposal announced for a five per cent cap on house price rises is all the more surprising when it comes from such an authoritative and respected body as the RICS.
The suggestion highlights the growing concerns that the market will get overheated by the year end and be driven further when the Help to Buy for second-hand homes starts in January.
The property market finds its own level subject to supply and demand. There are several reasons why the market is now gaining momentum, but the most appropriate remedy to avoid another ‘bubble’ is regulation of finance for mortgages. Interest rates are at their lowest, and must rise sooner than the Bank of England predicts.
To cap a market is authoritarian and raises many questions as to how it is implemented and enforced. Why should an owner who bought several years ago, undertook improvements and attracts buyers at a higher price be penalised? Why should a builder buying a neglected house be subject to a restricted increase after modernisation? Why should an elderly couple downsizing, and releasing vital capital, be subject to such restrictions? These seem to be the effect of any ‘capping’.
Yes, the proposals suggest adjustments to mortgage terms, but should they apply to any mortgage application?
House price inflation is not uniform throughout the UK and does not apply to all types of property. First time buyers must be encouraged. It would be prudent to scale back the present Help to Buy and adjust the proposals due in January.
An active property market is the key to recovery in the UK, and the source of capital for many owners and their families. Has the government misread the market and is it in danger of generating a serious problem?