How to deal with red hot house prices

Why, throw more fuel on the fire, of course. The Bank of England's latest change to mortgage approval criteria is all but guaranteed to help push prices higher. Not a political point, just an observation.

On August 1st, the Bank of England will end the requirement for mortgage lenders to apply a stress test when assessing a borrower's ability to meet monthly payments.

This test involves the lender being satisfied that the borrower will still be able to meet the repayments if interest rates rise by 3% above the current levels. The test was put in place as part of the response to the 2008 financial crisis.

The effect of this will be to increase the number of eligible buyers.

Successive governments have promoted home ownership, rightly so, yet the percentage of home owners has fallen from a peak of 70% in 2003 to 63% today.

Over recent years we have seen a number of initiatives designed to drive that percentage back up -

Help to Buy

Help to Buy ISAs

Government guaranteed 95% mortgages

Subsidised stamp duty

Shared ownership

Newly relaxed affordability rules

All of these are welcome news for first time buyers, but they are short term fixes, pumping more money into an overheated market.

With the Office of National Statistics projecting population growth of 2.1 million over the coming decade, housing demand will continue to rise and so will house prices.

For the UK to achieve higher home ownership and a stable housing market, there is only one long term solution. Build more houses.