Does the Housing Market Need to Cool Off?


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UK House prices have risen roughly 10% in the past year claims the Office for National Statistics, with an even greater rise of almost 19% in the capital. On top of this, house price inflation in the month of April hit 2% – the highest single month inflation for over 4 years. 

 

With concerns over unsustainable property prices leading to another cycle of boom and bust, the Bank of England FPC (Financial Policy Committee) met this week to discuss the greatest risks facing the UK financial system. It was widely believed that house prices would be top of the list. 

 

Have we reached the stage where policy makers need to step in to control the market? We will have to wait till the 26th June when the FPC will release their decisions in the Financial Stability Report to find out. But with new regulatory powers handed to the FPC by George Osbourne recently to attempt to rein in the market, it is likely that some form of intervention will be recommended.

 

Economic commentators predict that the most likely course of action will be a cap on mortgages compared to the borrowers income. However this would not stop the influx of cash buyers and foreign investors from further driving up house prices. 

 

On the other hand some argue that no external intervention will be needed as the market is beginning to make a natural correction and has already started to cool off. However the argument that markets will always correct themselves if left to their own devices has not served us well in the past and it seems naïve to entrust the future of our economic system to an intangible market that has led us astray one too many times already.

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