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Labour considers inflation for Bank of England

Thursday 11 April 2019

Labour is proposing two methods of controlling house price rises should it win the next General Election with the ideas have provoking a furious response from some sectors of the estate agency industry.

Under the proposals The Bank of England could be set a target for house price inflation, like the one currently in place for inflation, with tougher powers to restrict mortgage lending to close the gap between property prices and average incomes.

Outlined by Shadow Housing Minister John Healey, as with base rate, this would be kept under review by the Bank, which could use the control of mortgage lending as a method of reducing house price growth if it exceeded any target figure.

The Bank of England already restricts loan-to-income ratios to 4.5 times earnings for 15 per cent of new mortgages to stop banks from lending to economically-vulnerable consumers.

The second Labour proposal involves more direct government intervention, with politicians deciding a formal target for house price growth which could be one of several economic and social targets which Labour feels could lead to a reduction in house price growth as part of a wider package of economic controls.

Healey is also considering an alternative plan, to set a formal government target for house price growth which would not include using the Bank’s powers to guide decision-making across Whitehall.

Labour could decide that curtailing house price inflation works better as a government policy target rather than a mandate for the Bank, but Healey is currently exploring both avenues.

House prices

The average price of a house in the UK has risen over the past decade by almost 50% to £228,147, from the post-financial crisis low of £154,452 in March 2009. Real wages have yet to rise above the level recorded before the crisis, pricing rising numbers of people out of the property market.

Labour calculates that house price growth of 2% each year since 2010, instead of the actual rate of about 4%, would have kept the average price of a home at seven times the average full-time wage rather than eight times as is currently the case.

The house price to income ratio has skyrocketed as 20 years ago, it was four times the average pay.

Both Labour and the Conservatives are trying to find ways of tackling a lack of affordable homes across the country, which has pushed home ownership increasingly out of reach for millions.

The focus has, however, typically been on boosting the supply of new homes. While this is still central to Labour thinking, house price inflation targeting would be aimed at dealing with what it sees as an issue with the financial system fuelling excessive demand.

Labour has yet to work through the exact level of house price growth that would be targeted, and whether to vary the policy depending on region.

Neither proposal is yet Labour policy, but both have been floated by John Healey’s office in newspaper articles.

What Propertymark is doing

Consultations

In December 2017, NAEA Propertymark responded to the Government’s Call for evidence on Improving the home buying and selling process where we called for greater transparency, regulation of agents and improved redress for consumers.

Housing 2025

Propertymark’s Housing 2025 report explored issues faced by the housing sector in the UK, and endeavours to be tackled looking forward to the future. Topics explored were the decrease in home ownership and increasing house price growth.