House price rises 'must stop'
01-05-2014
Coaltion split on economy as Vince Cable warns that eight per cent increase in a year risks another bubble
Photo: ALAMY
By James Kirkup
The return of booming house prices leaves Britain at risk of “repeating the mistakes of Gordon Brown” and will force the Bank of England to intervene, a Cabinet minister has said.
Vince Cable, the Business Secretary, widened a split in the Coalition by describing increases in house prices in the South as a “worrying” development that threatens Britain’s economic gains.
Mark Carney, the Bank Governor, is preparing to step in to “deal with” rapidly rising house prices, he suggested, in remarks that escalate his dispute with David Cameron and George Osborne over the housing market.
The Prime Minister this week dismissed suggestions of a house price bubble, saying there was “no evidence” that the market was unsustainable.
Figures show that house prices in December experienced their biggest monthly rise for more than four years. The average cost of a home rose by 8.4 per cent last year, according to the Nationwide building society.
Separate figures from the Bank of England showed that the number of mortgages had risen to the highest level in almost six years. Some 70,758 mortgages, worth £11.1 billion, were approved in November, the most since January 2008.
Nationwide’s figures showed that house prices are now rising in every region of the UK, although growth remains extremely uneven.
In London, prices rose 15 per cent last year. There were also signs of hotspots emerging outside the capital: prices in Manchester rose 21 per cent over the year, and Brighton, Leicester and Birmingham all experienced double-digit growth.
By contrast, prices rose by only 2 per cent in Newcastle, Glasgow and Coventry. Despite the rises, Nationwide said the average cost of a home, at £175,826, was still 5 per cent below its pre-financial crisis peak in 2007.
The rises in house prices and mortgage lending have led some economists to suggest that the market could eventually crash and drag the economy back into recession.
Nationwide said the number of houses changing hands remained “subdued”, but added: “The risk is that if demand continues to run ahead of supply in the quarters ahead, affordability may become stretched.”
Mr Cable said the market risked a return to the cycle of boom and bust that marked the last Labour government. “The Government has done really good work turning the economy around: we can’t now risk it being derailed by a housing bubble repeating the mistakes of Gordon Brown.”
In the coming days, the Prime Minister and the Chancellor will both make public arguments in favour of policies to boost house buying such as the Help to Buy scheme. Senior Liberal Democrats are increasingly worried that Mr Osborne is wilfully overheating the housing market in the run-up to the 2015 general election, hoping that increasing household wealth will help the Conservatives’ campaign.
Mr Cable warned that a rising house market was not enough to restore the economy to health. “If we are going to get a recovery it has to come through exports and British industry, not property inflation,” he said.
He also suggested that Mr Carney was getting ready to intervene to cool the housing market before he moves on raising interest rates. The Bank has held rates at the record low of 0.5 per cent since 2009 and pumped billions into the financial system to keep borrowing costs low. With the economy in recovery, speculation is growing about when the Bank will start raising rates, with most City economists expecting a rise next year.
The Bank also has the power to rein in schemes such as Help to Buy and to demand that lenders limit mortgage borrowing.
Mr Cable said: “It’s not my job to tell them what to do, but I get a sense that the Governor of the Bank does understand this is a serious problem.”