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Last Updated: Wednesday, 17 March, 2004, 15:25 GMT
Brown moves to cool house prices
A semi-detached house
House price moves can have a big impact on the UK economy
Chancellor Gordon Brown has welcomed the findings of two key reports into the UK housing market.

The reports penned by Professor David Miles and Kate Barker outlined proposals for ending the boom-bust cycle of the UK housing market.

The chancellor said he would support changes to housing planning laws, but not without further consultation.

In addition, consultation will begin on whether lenders should offer fairer mortgage deals to existing borrowers.

The chancellor concluded that reform of the UK housing market was vital to "tackle potential inflationary pressures in housing, and potential bottlenecks in the supply of side of the economy".

As a result, more public and brownfield land - sites in urban or suburban areas formerly occupied by industry - should be freed up for the building of homes.

Reform of the UK mortgage market could mean lenders making their full range of mortgage products available to existing and new borrowers.

Market worries

Fears have been growing that the UK housing market is heading for a price crash.

High levels of personal and mortgage debt make the UK economy particularly sensitive to any dramatic fall in house prices.

"Last year, we identified the housing market, housing finance...as major barriers to meeting two of our five tests for euro membership," the chancellor said.

See how the UK housing market measures up

In the two Treasury-sponsored reports, both published in the past few days, increasing the supply of houses and the uptake of long term mortgage deals were identified as vital to promoting stability.

Professor Miles' report called for lenders to make their full range of mortgage products available to all borrowers.

According to the report the typical standard variable rate mortgage was priced at an average of 1.79 percentage points above the bank's borrowing cost.

In contrast, many short-term fixed-rate deals available exclusively to new borrowers were sold at cost price or even at a slight loss.

The chancellor said that he welcomed Miles' recommendations and would now consult with the city watchdog, the Financial Services Authority (FSA), on the best way to encourage more long-term mortgages.

More homes

The chancellor gave even warmer support to the findings of the Barker review into the UK housing shortage.

The Barker review, released on Wednesday, said the UK needs to build up to 140,000 extra new homes a year if housing supply is to match demand.

At present, fewer homes are being built in Britain than at any time since the 1920s.

Although the UK population is only growing slowly, immigration, divorce and longer life expectancy mean that the number of households in the UK is growing apace.

In her report, Ms Barker said planning bodies needed to take greater account of "market signals" - such as prices, demand and affordability - when setting housing targets and allocating land.

Green light

The chancellor gave the green light to many of Barker's recommendations.

As a result, more public sector land will be released for house building and the contaminated land credit extended to cover more brownfield land ripe for re-development.

The chancellor signalled the introduction of Real Estate Investment Trusts (REITs), intended to encourage pension funds and insurance companies to channel more money into building new houses.

Regional bodies will also be set up to oversee housing and planning issues.

The Deputy Prime Minister, John Prescott, will consult on how the need for more houses is balanced with environmental concerns.

Likewise, Barker's proposal to impose "tax measures" on gains accrued by landowners from the sale of their land for residential purposes will be consulted upon.

"It must be in the interests of the whole country to see whether we can forge a shared approach that would safeguard our environment, lead to more affordable housing and at the same time keep interest rates as low as possible," the chancellor said.





WATCH AND LISTEN
The BBC's Rory Cellan-Jones
"The government believes Britain needs more houses"



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