Bank of England Should Cap House Price Inflation

On this article by Reuters on September 13th, 2013 surveyors suggest that to prevent another property bubble the bank should cap annual house prices to 5%.


(Reuters) - The Royal Institution of Chartered Surveyors has called on the Bank to limit annual house price inflation to 5 percent to prevent another property bubble.

Such a policy, it says, could be implemented by imposing caps on loan-to-value ratios, loan-to-income ratios, or ceilings on the amount banks are permitted to lend.

The request - an unusual one from an industry group that typically benefits from rising prices - comes months before the government begins to offer mortgage guarantees to riskier homebuyers under its controversial "Help to Buy" scheme.


Property prices are already rising at more than 5 percent a year according to mortgage lender Halifax, and the RICS has joined a chorus of voices warning that price rises could become unsustainable.

Figures from LSL/Acadametrics on Friday showed a 30 percent rise in the number of first-time buyers.

"Sending a clear and simple statement to the public that the Bank will not tolerate house price rises above five percent would help restrict excessive price expectations across the country," the RICS report said.

"This policy would discourage households from taking on excessive debt out of fear of missing out on a price boom, and discourage lenders from rushing to relax their lending standards as they compete for market share."

The industry group notes that limits on property price inflation have been used by a variety of countries, including Canada between 2008 and 2012, when Bank Governor Mark Carney headed the country's central bank.

Under Carney's watch, Canada's national regulator the amount buyers could borrow in relation to their deposit and imposed more stringent credit checks - measures that appeared successful in bringing price inflation back down.

At a hearing before lawmakers on Thursday, Carney said that although Britain's central bank lacked formal powers to force banks to do the same, it could issue strong advice that they rein back lending.

However so far the Bank has not identified a bubble in house prices. Its Financial Policy Committee is charged with spotting risks building up the financial sector and acting to head them off.

(Reporting by Christina Fincher; editing by Ron Askew)

Article Source: http://uk.reuters.com/article/2013/09/13/uk-britain-housing-idUKBRE98B1BC20130913

Record Numbers Plan to Fund Retirement by Selling Property

According to this article by Patrick Collinson on August 13th, 2013 of The Guardian nearly five million homeowners say they will sell or rent their main property, as annuity rates slump to new low.

Record numbers of people are planning to sell their main home to fund their retirement, according to research published on Tuesday, which comes amid claims that pensioners will have to live to 90 to make annuities "good value".

The research, by Baring Asset Management, found that 13% of people (nearly 5 million) say they are planning to rent or sell property to fund their retirement, up from 11% last year.

But there were big regional variations, with people in the south west four times more likely to have property to sell their primary residence in retirement compared to people in Scotland and the West Midlands.

Faith in property as an investment for retirement mirrors the decline in confidence about annuities. An annuity is the annual income that savers buy from their pension pot, but rates have collapsed over the past decade, and moved to new lows as quantitative easing and Funding for Lending has depressed interest rates.

Ros Altmann, a former pensions adviser to Tony Blair, told the Daily Mail that annuities are now "the biggest gamble" of pensioners' lives, and that they will have to live to 82 to get their money back, and 90 before they become "good value".

She said: "Buying an annuity is considered the 'safe' thing to do when reaching retirement. This is misguided. The 'safety' only refers to the fact that the amount of income will be set for the rest of your life.

"But the capital itself is at risk. Most people will receive a very poor return on their money – and many will not get their money returned to them at all."

Many people have turned to buy-to-let as an alternative to traditional pension plans, as the investment does not have to be turned into an annuity – and have enjoyed much better returns than equities or bonds.

The Office for National Statistics reported on Tuesday that house prices rose 0.4% month-on-month in June, as they had done in May, which pushed the annual rate of increase up to 3.1% from 2.9%. This is being inflated by strong price rises in London (up 8.1% year-on-year in June).

The figures come hard on the heels of a report from the Royal Institution of Chartered Surveyors, which indicated that Help to Buy and other schemes are fuelling a rapid recovery in prices.

Economist Howard Archer of IHS Global Insight said: "It is looking ever more likely that house prices will see marked increases over the rest of 2013 and during 2014, with the result that we have raised our house price forecasts. We now expect house prices to rise by at least 3% over the rest of 2013 and to then increase by 7% in 2014."

Article Source:  http://www.theguardian.com/money/2013/aug/13/record-numbers-retirement-selling-property