George Osborne, the British finance minister, gave the Bank of England full authority to introduce new measures directed towards cooling Britain's overheated real estate market. Officials believe that if prices continue to soar at the current rate, the economy could crumble down like a house of cards.
Osborne said that the BOE would now have all authority to tighten lending practices to cut risks. The bank will regulate who can borrow how much depending on their income and the value of the property they intend on purchasing.
"We saw from the last crisis the dangerous temptations for politicians to leave the punch bowl where it is and keep the party going on for too long," The Telegraph quoted Osborne.
"I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market."
"I want to protect those who own homes, protect those who aspire to own a home, and protect the millions who suffer when boom turns to bust."
Osborne also announced a new set of planning rules that will limit the number of homes built on urban industrial sites to 200,000. He added that the government and the bank will work together to put the legislations into action, reports Reuters.
Indeed, home prices have been on the rise for quite some time now. In May, the average price of a house was about $309,403, up 8.7 percent on a year over year basis and the highest since April 2008, according to The Wall Street Journal.
Considering the price frenzy, experts opined that the government needs to introduce tighter measures to rein in the lending.
"The Help to Buy scheme should be reined in and more barriers need to be put in place to negate further foreign investment in residential property," Russell Quirk, CEO of eMoov, an online real estate website, told The Metro.
The "Help to Buy" scheme was introduced by the government last year to boost lending and provide wide access to mortgages. However, the price, demand and income ratio inequality is now calling for a change. eMoov recently released a report claiming that if the prices kept increasing at the current pace, all London homeowners would be billionaire in the next five years.
Ironically, even before the government started implementing the regulations - home prices started cooling down. According to Bloomberg, average prices in the luxury home market segment fell by 14 percent on a year over year basis in some boroughs.
"We are seeing a cooling of the market in some London locations, even if the 13.3 percent annual increase in prices would be categorized as 'high' by most market commentators," said Peter Williams, Chairman of Acadata, in a report.
