Vince Cable: 'stop the housing boom'

The Bank of England is coming under increasing pressure to put the brakes on the accelerating housing market.

by Rachel Savage
Last Updated: 29 Jul 2014

When politicians and public policy big dogs are queuing up to pontificate on a problem something eventually has to give. The problem in question is the booming housing market; however, the pressure to act is not piling on the government, but on the Bank of England.

‘In the short-run, the immediate problem is to stop this boom getting out of control,’ Vince Cable, the latest high-profile politician to wade in on the issue, told the BBC.

The business secretary said he was ‘appalled’ some banks were handing out mortgages that were five times people’s income and claimed a ‘stable level’ would be three and a half times.

He did admit, however, that most of the heat has been in London and the south east. House prices are rocketing 17% annually in London, compared to 8% across the whole country, according to the latest Office for National Statistics data.

Cable didn’t point the finger at the Bank of England, but chancellor George Osborne said the ball was in Mark Carney’s court last week, after the IMF said housing is a risk to the economy. He may well repeat that tonight at his annual Mansion House speech (which has so far been trailed as an assault on fx-rigging bankers).

Andrew Tyrie, the chairman of parliament’s Treasury Select Committee is also singing from the same hymn sheet, saying yesterday that the bank’s Financial Policy Committee should have a think about deploying their ‘set of new powers and tools’ at their meeting next week.

Measures such as forcing borrowers to raise bigger deposits and limiting mortgages to lower multiples of income may be effective in cooling the housing market in the short term, particularly as raising interest rates could mean many current mortgage holders suddenly struggling with repayments.

The irony, of course, is that those would be the polar opposite of Help to Buy. MT has pointed out that bubbling house prices (which Nationwide, among others, has said are 'starting to moderate' are not entirely the scheme’s fault. However, a roll-back would vindicate Albert Edwards of Société Générale, who described it as ‘truly…moronic’, this time last year.

Short-term tinkering aside, sooner rather than later the government will need to stop passing the buck and deal with the fundamental problem: the lack of new homes. Unless George Osborne's golden boy Mark Carney is going to don hard hat, steel toe-capped boots and go on a bricklaying course, there's very little he can do to address the root of the problem - the lack of new homes being built.

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