Reactions: RICS’ proposed cap on house prices
Finally we have some visible growth. Don’t panic, says Glentree International’s Trevor Abrahmsohn…
How could anyone argue against prudent lending of any kind, but particularly with mortgage applications, to stop the problems of the past by way of massive mortgage defaults by consumers who over extended their financial capability?
I suppose that there is only so much available funding and mortgagees, in the post credit crunch era, have been careful not to encourage applicants to take on more debt than is healthy but the Bank of England and the Treasury should monitor this closely to make sure that around the fringe there are no abuses of the system.
But how RICS could ever link a cap on house prices to 5% beggar’s belief. They are stating the obvious by recommending financial prudence but in any event change to mortgage lending lags behind changes to the housing market values by possibly a year or so and therefore it would make it very difficult to link these elements in a constrained fashion.
What housing bubble? Property prices across the UK have been in the doldrums for the last two – three years and now at last there seems to be some acceptable growth that usually lags behind London by 18months to two years. This growth is the very stimulant that the economy needs to get up and running to provide jobs, bring in taxes and improve standards of living.
First time buyers will always be disadvantaged by housing growth. Frankly the only way that they would get a profound benefit is during a recession when prices drop by 20-30% but that would be disastrous for the economy and the rest of the country.
At last, we have some visible growth (long overdue) and everyone is worried about a boom!
I think that commentators are getting too jumpy and vexed about a housing boom. If at the moment there is 5% growth in house prices this will undoubtedly stimulate retail spending, the construction industry, sale of white and brown goods and this is no bad thing.
Cast your mind back to 2010 when some commentators complained that Osborne’s budget cut-backs would hit the outer regions hardest and exacerbate the collapse of house prices across the UK particularly where it is connected to the public sector. Now, at last, we have some visible growth (long overdue) and everyone is worried about a boom!
Lest we forget, sustainable growth in the housing economy shrinks debt in relation to equity and that’s a good thing for anyone who has a home, has a buy-to-let investment or is perhaps using their home as a pension.
We have to thank the gloriously incapable Chancellor Brown for the destruction in the pension markets for the first five years of his term by snatching the tax credits from pensions and if house owners want to use their homes as a quasi pension as a result of the lack lustre performance of pensions generally – good for them.
Stay cool, there is no problem of housing boom it is, after all, a press induced phenomenon that gets people talking about the housing market and, lets face, it is a subject close to many peoples hearts.
“Don’t panic Mr Mainwaring, they don’t like it up’um”…
And here’s a few other reactions from around the industry…
RICS has shown a lack of understanding
Michael Fiddes, head of agency at Strutt & Parker: “Today’s surprise announcement by RICS, suggesting a cap on house price growth as a way of tackling economic risk taking and debts, is a facile one. As a member, I am concerned that RICS has shown a lack of understanding of the housing market.
“It is important to realise there is not a uniform property market in the UK. To understand the market, it is imperative to consider all sectors and all geographical areas, and London and the SE have seen rises greater than the rest of the UK.
“Although there is talk of a price bubble, which I believe is hyperbole anyway, it doesn’t feel like that across all areas of the UK. The London market, which has seen the greatest price surge, has lots of cash buyers and the RICS policy suggestions do not affect these types of purchasers. Trying to limit areas that are seeing the highest price growth means other regions may suffer as a result.
“If you try to cap house loan to income ratios, an instrument that RICS is suggesting, all you’re doing is distorting the natural movements of the market. I don’t believe that trying to influence the basic laws of supply and demand is the right way of tackling the problem.
“If a bubble is being created, one of the main causes is the Government’s help-to-buy scheme. What we need to do is see a stable market where housing is affordable and if we can get the supply and demand levels correct, then a free market will find its own level. It feels like RICS is proposing a remedy to the help-to-buy, but you cannot cure a wrong with another wrong.”
Could be detrimental for those areas still waiting for the “froth”
Nicholas Leeming, Chairman-elect of national estate agents Jackson-Stops & Staff: “While there are some signs of greater activity in the UK housing market, this is not reflected across all sectors. We do not believe that there is any set formula to be followed in controlling the housing cycle, but the Bank of England will obviously consider whether higher interest rates, restricting credit availability or other controls are required if there is clear evidence that the overall market is overheating in the future.”
What about the social cost?
Sue Foxley, Head of Research at Cluttons: “An introductory ‘speed bump’ to the property market would temper the housing market and perhaps avoid the volatility seen in the past, but there is a social cost of such a policy in terms of setting the hurdle even higher for households who are in housing need.
“The Bank of England only controls one side of the equation – what we really need are more homes. As schemes such as Help to Buy take effect – helping homebuyers get that first important step on the run – the absence of the intervention on the supply side will result in prices rising well ahead of earnings – especially in London and the south east.
“We of course openly welcome initiatives from lenders who are enabling homebuyers who have been unable to move on with their lives effectively since the Lehmans collapse exactly five year ago. However, while the Bank of England and Government can put in place such measures centrally to support buyers, supply has fallen evermore into the hands of local communities who inevitably and understandably do not have responsibility or regard for a national housing crisis.”
Ridiculous. The free market always dictates the correct price
Peter Young, Managing Director of John D Wood & Co.: “RICS’s idea is ridiculous. We live in a free country, not a Police State. The free market always dictates the correct price paid, whether property, consumer goods or a service.
“When governments interfere in a free market economy they can never plan for the unintended consequences of their actions. For example the hike in Stamp Duty Land Tax (SDLT) to 7% for property sales over £2m has increased the demand and value for properties below this threshold and created a dead zone just above so distorting the market.
For example anyone trying to trade up from say a £1.5m property to a £3m property, in addition to repaying their initial loan and finding a further £1.5m they will also have to find and extra £300,000 to pay for the SDLT at £210,000 plus solicitor’s and agent’s fees and the cost of moving itself. This is circa 10% of the onward purchase price all for an extra bedroom or two. As a result those living in property under £2m are frequently better off putting the £300,000 towards digging out a basement or building on top or at the side or back of their existing property, thereby depriving HM Customs & Excise of much needed revenue and irritating their neighbours. Less is frequently more!
“Secondly how would it be possible for the Bank of England to control the UK property market? The property market, like any other is controlled by supply and demand. If enough people want something, and they are willing to pay more, then they will. Why else is John D Wood & Co. seeing multiple sealed bids for properties in prime areas of London? How will the Bank of England control cash buyers? In the Prime Central London property market cash is king however it makes financial sense to take out a loan with the current low interest rates.
“Indeed, for once, even estate agents are concerned about the pace of rising prices forcing people to stay in their homes and extend if possible. The traditional property market, where you sell a smaller property to trade up to a bigger one using your pay rises to fund a larger mortgage and continuing to rise up the ladder until you reach a large family home has changed because the steps are now too costly. Incomes are not going up at the same rate as house prices.”
“If Her Majesty’s Government really wanted to control values and bring down house prices then they need to make it cheaper not more expensive to move. They would also substantially increase their revenue, by helping unlock the market. However that won’t impact on overseas investors wanting a safe haven for their cash.”
Capping mortgage buyers will further alienate them from a competitive London market
Nicholas Finn, London director of property finders, Garrington: ”We expect that the proposal by the RICS to limit house price growth to five per cent annually will have little or no effect in the London market. It is already a ‘sticking tap’ for mortgage lending and the Government already knows that it can’t have it both ways by boosting through Help to Buy and then limiting annual price rises.
“Effectively this proposal would further prevent mortgage buyers from buying property in a competitive market. Cash buyers, who will remain unaffected by the proposal, make up around 40 per cent of the market. They are already ahead and advantaged and buyers with mortgages do not drive the market when there is a small pool of properties. We were recently involved in a case where a seller had a number of sealed bids, our client had to convert to a cash buyer to be in the running as cash buyers are considered quicker buyers. Capping mortgage buyers will further alienate them from a competitive London market “.
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