Vince Cable: Housing boom 'needs stopping'
- 12 June 2014
- From the section Business
Action must be taken to stop the "housing boom" in parts of the UK getting "out of control", according to Business Secretary Vince Cable.
He said he was "appalled" that some banks had been lending five times a mortgage applicant's income, suggesting a "stable level" was up to 3.5 times.
The desires of potential homeowners should be balanced against the stability of the economy, he added.
His comments come ahead of a major speech from the chancellor.
George Osborne, in his Mansion House speech, is expected to say how the Bank of England could tackle any financial instability caused by house price rises.
Various surveys have suggested that house prices have been rising in most parts of the country, but particularly in London.
The latest figures from the Office for National Statistics (ONS) found prices rising at an annual rate of 17% in the city, compared with 8% in the UK as a whole.
Mr Cable told the BBC: "In the short-run, the immediate problem is to stop this boom getting out of control."
However, last week the Nationwide Building Society said that there had been signs that activity in the UK housing market was starting to "moderate".
And the Royal Institution of Chartered Surveyors (Rics) said that the momentum was starting to slow in the housing market, as "a lack of supply, higher prices, and more prudent lending measures" were making buyers and sellers more cautious.
Mr Cable said that banks "must not throw petrol on the fire" by giving home loans that ran at high multiples of applicants' incomes, although he pointed out that the "boom" was only being seen primarily in the South East of England.
Figures from the Council of Mortgage Lenders (CML), published on Thursday, showed that first-time buyers borrowed an average of 3.42 times their income in April. This was much higher than in the early 1980s, when it was less than twice.
The figure is an average, so there would be cases when it was much higher.
Data shows that the average property price is currently about six times average earnings. About half of mortgages are secured on a single income.
A large chunk of London properties are bought by cash buyers, affecting prices in the city.
Mortgage brokers have claimed that Mr Cable's views are behind the times, owing to recent regulations that ensure tighter affordability checks from lenders.
"The Financial Conduct Authority has just completed the implementation of the biggest set of changes to the mortgage market in 10 years and the lenders are relying very heavily on mortgage affordability," said Aaron Strutt, of Trinity Financial.
"Until house prices come down buyers will need more generous income multiples otherwise they will be forced to rent for longer or rely on the Bank of Mum and Dad."
Some of Mr Cable's views do echo a warning from the International Monetary Fund, which suggested that an acceleration in global house prices from already high levels was threatening economic stability.
Min Zhu, the IMF's deputy managing director, said that house prices were well above their historical average in many countries.