LONDON (Reuters) - British house prices have risen by about 10 percent over the past year and in London, gains are about double that rate.
Top Bank of England officials have sounded more worried about the prospect of a new bubble in recent days, raising the possibility of new measures when the Bank's Financial Policy Committee (FPC) meets next month.
The following are steps that the government has already taken and could yet take to keep a grip on the market:
MEASURES ALREADY TAKEN
- Underwriting rules: Tougher rules for mortgage lenders came into force in April, requiring stricter checks on a borrower's ability to repay their loans. A fall in mortgage approvals in February and March could be a sign that banks were already taking a more conservative approach.
- Funding for Lending: in January, the Bank of England stopped giving incentives to banks to issue mortgages under its flagship FLS plan which was launched in 2012, when the housing market and the wider economy were floundering.
POSSIBLE NEW MEASURES
- Bank capital: the FPC could force banks to hold more capital to cover home loans as a way of making them think twice about lending. This is seen as a major step the full impact of which is uncertain and it could be slow to have an effect.
- Affordability: Under new mortgage lending rules, borrowers have to show they can afford to pay the loan even if the interest rates were 3.5 percentage points or more above the lender's standard variable rate. The FPC could recommend a higher level.
- Help to Buy: The government last year began guaranteeing risky mortgages worth up to 95 percent of the value of a property, saying it wanted to help first-time buyers unable to afford big deposits. The FPC could recommend that the government lowers the ceiling for properties qualifying for the plan which currently is set at 600,000 pounds. But early data suggests most of the homes bought using a Help to Buy mortgage are worth a lot less than the ceiling, and few have been in London.
MORE RADICAL OPTIONS
- Mortgage caps: The FPC could recommend caps on the size of mortgages in relation to the price of a property or a person's salary. Shorter mortgage repayment periods is another option. Steps like these have been taken in countries such as Canada. However, they would not stop cash purchases which are helping to fuel sharp price rises especially in London. Such measures may also lead to backlash from politicians against unelected policymakers if they prove unpopular with would-be homebuyers.
- Stamp duty: The government has already raised the tax on property purchases at the top end of the market but hiking the levy in the mass market would be deeply unpopular ahead of a general election in 2015.
- Interest rates: Raising interest rates is seen as the Bank of England when it comes to trying to control the housing market because it could increase the burden of household debt and set back Britain's economic recovery. The Bank of England has hinted that its first rate hike might come in the second quarter of 2015.
(Reporting by Huw Jones; Editing by William Schomberg)