Thinktank the Institute for Public Policy Research (IPPR) has called for the Bank of England to be given new powers on mortgage restrictions to prevent house prices rising for at least the next five years.

London houses

The Bank of England should be able to target zero house price inflation in the same way it aims to keep inflation below 2% overall according to the IPPR

Source: Shutterstock/Nadina

The left-of-centre think tank’s report ‘One Borrowed Time’ said the bank should be able to target zero house price inflation in the same way it aims to keep inflation below 2% overall.

A new zero inflation target would mean house prices falling by around 10% in real terms as wages continue to rise and would form part of IPPR’s proposals to “rebalance the UK economy away from a traditional reliance on the City and property investment towards science and manufacturing”.

Latest Nationwide figures recently showed that house prices grew by the slowest rate in five years in June, with London remaining the weakest spot, but still managed to rise by 1.9%. House prices increased tenfold between 1980 and 2008, pushing the average price of a UK home to £215,444, almost eight times the average income.

Author Grace Blakeley 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 that 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.”

Other proposals made by the IPPR include a new financial transactions tax on currency trading, abolishing the corporation tax surcharge on banks and raising the current bank levy on banks’ and shadow banks’ global balance sheets alongside measures to to improve transparency within the financial system.

Mark Hayward, NAEA Propertymark chief executive, added: “Excessive house price growth is certainly not something we want to see, but homebuyers make purchases on the basis of capital appreciation and the belief that their investment will be protected and enhanced. We encourage all measures to help first-time buyers get onto the housing ladder, but with property transactions at an already low level, this sort of tampering could have unintended consequences.”