A think-tank says UK house prices should be frozen for the next five years to prevent another financial crisis. The IPPR wants to peg house prices so they cannot grow faster than consumer price inflation, which has a target of 2 percent.
According to the proposals, restricting mortgages and having the Bank of England set a separate house price inflation target would help house prices fall by around 10 percent in real terms while wages and other prices rise to make homes more affordable.
The IPPR’s recommendation, contained in a discussion paper entitled On Borrowed Time: Finance and the UK’s current account deficit, is part of its wider plan to rebalance the UK economy.
It suggests that the Bank of England’s financial policy committee establish a new regime of demanding property buyers provide a higher initial deposit while insisting lenders set stricter ceilings on loan-to-income ratios.
Move towards more sustainable growth
Grace Blakeley, a research fellow at the IPPR, is the author of the discussion paper. She said: “Since the 1980s, the UK’’s business model has rested on attracting capital from the rest of the world, which it has channelled into debt for UK consumers.
“The 2008 crisis proved this is unsustainable. We need to move towards a more sustainable growth model, one built on production and investment rather than debt and speculation.
“To do this. we must break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy.”
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