Housing demand measures in London may win the next election

George Osborne announced yesterday that the Bank of England will be given new powers to cap home loans.  In his Mansion House speech he states that one proposal is that lending is to follow strict loan-to-income ratios. Surely all banks have these in place as part of their affordability calculations - the long-standing income multiples?  I'm not sure what steps the Chancellor wants banks to go through when their affordability calculations are already subject to FCA scrutiny.

The BBC suggest that this won't be the first tool used to cool the market

http://m.bbc.co.uk/news/business-27829744

Unfortunately, it seems that this government and the Bank of England have let house prices in London and the South East start to get out of hand and are now proposing the whole mortgage msrket suffers while they look for the cure. The cure, by the way, is to build hundreds of thousands of new homes every year.  I've said this several times before in this blog, but this is a long-term answer.

The short-term answer is to look at demand, whereas supply can only be dealt with over the longer term.

Housing demand can be cooled by threats and warnings, but these will create a quickening of the bubble as people decide to act quickly before prices rise even higher and before regulations make buying more difficult.  A gentler cooling of demand in certain parts  of the country, coupled with a more drastic drop in demand in London will be the most desirable outcome.

The only wag to achieve this is to treat London as a separate market - change regulations and restrictions there (say within the M25) to create an immediate slowdown in prices.  Changes to achieve this could include-

Higher stamp duty rates

Enforced lower income multiples

Higher Capital Gains Tax

Regulations to stop properties being turned around quickly

Regulated rents to ensure 'Generation Rent' can afford to live in London

Restrictions on overseas buyers

Some of these measures as a direct strategy to deal with the runaway house prices in London and the South East may just save this government in next year's election.