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Time to cool the fever of rising property prices

It is a relief for many first-time buyers that, after years of gazing wistfully into the estate agent's window, they can now buy a home because finance has become more attainable.

Yet, while that development is broadly welcome, it is possible to have too much of a good thing when it comes to demand for property.

Business Secretary Vince Cable's warning that banks risk "throwing petrol on the fire" of the house price boom is justified. Mr Cable said he had been appalled to learn that some institutions were lending five times the salaries of applicants, a state of affairs worryingly reminiscent of the bad old days before the last property boom. He argues that the sustainable level is three to 3.5 times salary.

Some will disagree. There are parts of the UK, particularly the south-east of England, where appropriate property is unaffordable for those on modest incomes without such large mortgages. The imperatives of those living in and around London should not dictate lending policy for everyone, however. Mr Cable rightly argues that the stability of the UK economy should come first. Demand for property has been stimulated by the greater number of buyers who can obtain mortgages, and that in turn is helping fuel house price rises.

Price rises in Scotland are substantially lower than in London, but Edinburgh, Aberdeen and parts of Glasgow have seen big jumps. Scotland, like the rest of the UK, benefits from a buoyant housing market, but not one where prices spiral out of control, which is becoming a realistic danger. House price rises may be broadly popular but the danger of ever larger loans being approved that ultimately become unaffordable to the mortgage-payer, due to rising interest rates, is one that cannot be ignored.

So what can be done? Restrictions on the size of loans is one simple mechanism for cooling the fever. It is the Bank of England's job to persuade banks of the need to funnel investment capital towards small and medium-sized businesses, on whose prosperity a healthy economy is built, instead of into potentially rickety mortgages.

Chancellor George Osborne, who has been a champion of Help To Buy, the Government scheme to assist first-time buyers, has been somewhat slow to acknowledge the danger of a housing bubble but last night made a welcome announcement that the Bank of England would be given the power to restrict mortgage loans compared to borrowers' incomes or the value of their house. This is a sensible move and the Bank should make use of its new powers.

But the other cause of rising prices is the lack of property. Scotland needs more houses. The Royal Institute of Chartered Surveyors Scotland has warned that supply of homes is trailing demand. Quelling fever in the market is therefore not just the responsibilty of the Bank, but of the UK and Scottish governments, which must do more to speed up the building of new homes and closely monitor the effects of their support schemes for buyers. For a start, UK ministers should lower the £600,000 limit for Help To Buy properties.

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