Should the Bank of England be able to put a squeeze on the housing market?
According to a prominent think-tank – The Institute for Public Policy Research (IPPR)- says the Bank of England should be given the power to ‘target zero house price inflation in the same way it aims to maintain general inflation at around 2%’.
The argument is to place restrictions on mortgages for UK homebuyers which could mean house prices falling as much as 10%, while household incomes continue to rise, thus creating more affordable housing.
In 2016 when Theresa May became Prime Minister, she told the British public that she ‘wanted to build a better economy for the country by relying more on the fields of science and manufacturing and not on the City and property investment’.
Of late house prices keep growing even though obstacles such as the tax increase on buy-to-let and second homes, a weak economy growth and uncertainties of how the Brexit deal will affect the housing market, the IPPR believes allowing the Bank of England to squeeze the housing market will allow a rebalance of the UK economy.
Although house prices have continued to grow at a rapid pace in the last 20-30 years, but figures from the Nationwide Building Society have seen a slow down in the rate of house prices in the last five years.
The average house price in the UK is £215,444 which works out at nearly eight times the national average UK income.
If the Bank of England do introduce these measures, then current home owners could see a depreciation in the value of their homes. On the other hand, it may help generation rent to be able to get onto the housing ladder!