The U.K. government should consider introducing a tax on vacant properties to encourage construction companies to make better use of the land, the European Union said.
Such a levy would help alleviate the country’s housing shortage, the European Commission, the EU’s executive arm in Brussels, said in a report yesterday. It would also reduce the risk of a surge in household debt, which is at the highest level since records began in 1993 if home loans are included.
U.K. house-price growth accelerated in February to the fastest monthly rate in almost five years, Halifax, a unit of Lloyds Banking Group Plc, said in a statement today. The rising cost of buying a home may leave households exposed to a jump in interest rates, potentially causing a “sharp” fall in house prices and hurting the economy, the commission said.
“In the medium term, the risk is more pronounced,” the commission said. “A sequence of rises in the cost of borrowing following a rapid rise in house prices and mortgage indebtedness could leave households vulnerable.”
The government should consider providing local authorities with incentives to sell land with planning approval for homes, according to the report. It should also examine whether to update property valuations for assessing local-government council tax because the current system is based on prices in 1991, the report said.
More than half of first-time buyers are taking out mortgages with a repayment period of more than 25 years as prices surge, the report said. They are also borrowing a median of 3.4 times their income, compared with 3.0 in February 2009.
The European Commission said the Bank of England’s financial-policy committee should consider outlining how and when it would use its powers if there was too much credit available in the market and it posed a risk to financial stability.
Those powers could include requiring banks to increase “loss-absorbing capital” against the effects of an economic downturn and making recommendations on maximum loan-to-value and loan-to-income ratios to restrict particular types of mortgages.