May 6, 2014 / 9:17 AM / 6 years ago

OECD says UK should do more to curb rising house prices

LONDON (Reuters) - Britain should take action over soaring house prices, perhaps by scaling back the government’s mortgage guarantee scheme, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday.

Britain’s housing market, buoyed by record low interest rates and government-sponsored schemes, has been a driver of the country’s surprisingly fast, consumer-led economic recovery.

“Monetary policy tightening should be accompanied by timely prudential measures to address the risks of excessive house price inflation,” the OECD report said.

“House prices ... significantly exceed long-term averages relative to rents and household incomes.”

House prices surged last month at the fastest pace since the start of the financial crisis and the focus is turning to the Bank of England’s ability to prevent a damaging property bubble without raising interest rates sooner than it is planning.

The BoE has mostly played down suggestions the market is overheating. But last week one of its deputy governors, Jon Cunliffe, told bankers that it would be “dangerous” to ignore the rapid rise in prices, which are up nearly 11 percent over the past year.

At the end of last month, tighter rules on mortgage lending were brought in requiring more rigorous checks on whether borrowers can afford their loans. A meeting of the BoE’s Financial Policy Committee in June may bring more measures.

The OECD said further action on housing might include “tighter access” to the government’s Help to Buy program which provides guarantees for higher-risk mortgages in an attempt to help first-time buyers into the market.

Economists have suggested that lowering the program’s 600,000-pound ceiling on the value of qualifying properties would reduce its impact on London, where house prices are rising much faster than in the rest of the country.

The OECD also suggested the introduction of higher capital requirements and maximum loan-to-value ratios for mortgages.

Government changes to pension rules, allowing people to take higher lump-sum withdrawals from their savings, could also stimulate the housing market, the OECD said.

Last month finance minister George Osborne said vigilance was needed on house prices, but there was a distinction between booming prices in London and levels in the rest of the country.

He also said he had not seen evidence that the Help to Buy scheme had boosted prices.

Overall, the OECD report raised the estimate for British economic growth this year to 3.2 percent and said it was likely to remain strong on the back of business investment and private consumption.

“As a result, the unemployment rate is set to fall further and wage growth to pick up,” it said.

Editing by William Schomberg Editing by Jeremy Gaunt

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