Last updated: June 12, 2014 9:37 am

Cable urges action to cool housing market

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File photo dated 12/10/10 of for sale signs. House prices have leapt by 11.1% over the last year in the strongest annual growth seen since June 2007, building society Nationwide has reported. PRESS ASSOCIATION Photo. Issue date: Tuesday June 3, 2014. The report covering May also marks the second month in a row where annual growth in property values has hit double digits, following a 10.9% year-on-year uplift in April. See PA story ECONOMY House. Photo credit should read: Rebekah Downes/PA Wire©PA

Vince Cable on Thursday urged the Bank of England to intervene to stop the housing boom from “getting out of control”.

The business secretary said he was concerned that house prices were rising too fast in southeast England and London adding that he was “appalled” to discover that banks were lending five times people’s salary.

“They have already reined it back on advice from the Bank of England but this is the key area that the Bank of England has got to operate in to make sure that this boom in house prices, particularly in the south of England, doesn’t destabilise the whole of the economy,” Mr Cable told the BBC’s Today programme.

Lenders must not “throw petrol on the fire”, he said, but should limit the level of mortgage lending to “about 3 to 3½ times people’s income”.

His remarks came as the latest survey from the Royal Institution of Chartered Surveyors showed that surveyors are beginning to rein back their previous expectations of house price rises amid signs that buyer interest, even in previously red-hot London, is cooling.

A combination of more stringent lending conditions, concern about interest rate rises in the future and a lack of supply of properties appeared to be “stemming the tide” of prospective buyers, Rics said.

The organisation, which has previously warned that a chronic imbalance between a shortage of supply and rising buyer demand was serving to drive up prices, said new instructions contracted for the fifth consecutive month in May.

But new buyer inquiries, while still up, are now rising at the slowest pace since February last year. Simon Rubinsohn, chief economist at Rics, said the change was “quite material”.

At a national level, Rics expects house price inflation to continue rising for the next six months before beginning to slow towards the end of the year.

But for London, where instructions increased but new buyer inquiries fell for the first time in 14 months, Mr Rubinsohn said the data were pointing to a slowdown in property price increases “perhaps a little sooner”.

He added that some of the strong upward momentum had left the housing market, noting a “lack of supply, higher prices, more prudent lending measures and some of the talk from the Bank of England are creating a level of caution among sellers and buyers”.

He added: “In particular, we’re seeing the London market level off.”

May was the first full month that the Mortgage Market Review, which requires banks to apply stricter affordability tests to potential borrowers, was in operation.

While there were few signs of an impact in Nationwide and Halifax’s house price indices for May – which both rose strongly – the Rics data capture activity at a much earlier stage in the house-buying process.

Data from the Bank of England have shown mortgage approvals falling for three consecutive months, which some economists have interpreted as a sign of banks tightening up their lending criteria even before the new regulations came into force.

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