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Cable says rate rise may be needed to stem London housing boom

by James Phillipps on Dec 23, 2013 at 07:15

Cable says rate rise may be needed to stem London housing boom

Business secretary Vince Cable has warned of a ‘raging housing boom’ in London and said a rise in interest rates may be needed to temper the market.

Speaking to the BBC, Cable (pictured) again called for a review of the government’s flagship House to Buy policy, which ratings agency Standard & Poor’s last week accused of helping to cause an imbalanced economic recovery in the UK.

While the strength of the prime central London housing market risks making home ownership there the sole preserve of ‘foreigners and bankers’, the LibDem veteran acknowledged that a rate rise risked hitting the manufacturing sector, by sparking a sterling rally that would hamper exports.

‘There is a raging housing boom in London and the South East, and not in other parts of the country. The danger of raising interest rates is that you hit those parts of the country which are not yet fully recovered, you push up the exchange rate and that hits manufacturing. We don't want that,’ Cable said.

‘On the other hand, if you do not increase interest rates – if that is the way the governor and the Bank of England go – then this boom that is taking place in housing prices gets out of control and the only people that can afford to live in large parts of London are foreigners and bankers, and we don't want that either.’

In another attack on the Help to Buy scheme, the business secretary admitted it was put in place at a time of ‘very different circumstances’, but said continuing the policy at a time of spending cuts, is worsening the imbalances in the economy.

Cable’s comments come at the same time as Bank of England deputy governor Andrew Bailey’s warning that the Bank will act to stem a housing bubble if it feels it is getting out of control.

1 comment so far. Why not have your say?

A C Wiltshire

Dec 23, 2013 at 15:04

Cable is as usual out of touch with reality. The main driving force behind the house price increases in London are cash buyers from aboard seeking a safe haven. Instead of raising interest rates, government should bring in a higher tier of property purchase tax beginning at £1 million. This however is unlikely to occur, draw your own conclusions as to why. Raising interest rates at this time could well dampen economic growth to early in the cycle.

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