Mortgage cap 'should be considered'

Maldon and Burnham Standard: Lord Heseltine said mortgages of up to 5.5 times salary could create a 'dangerous situation' Lord Heseltine said mortgages of up to 5.5 times salary could create a 'dangerous situation'

The Bank of England should consider capping the loan-to-salary ratio for mortgages to prevent a house price bubble, Lord Heseltine has suggested.

The former deputy prime minister said mortgages of up to 5.5 times salary could create a "dangerous situation" when interest rates rise from their historically low levels.

But he said that the Bank would need to make sure that any action it took did not "choke off" energy and enthusiasm in the market.

The Tory peer said it was "not sensible" and "it was part of the initial housing bubble crisis when one saw the ratios begin to creep up and up".

He told BBC Radio 4's The World This Weekend: "I f you take into account the inevitable increase in interest rates that is going to come some time in the medium if not early future then that is a dangerous situation."

Asked whether the Banks should set a loan-to-income cap he said: " Certainly they should look at it, they should look at anything that can try to help even out the rebalancing of the economy, as long as it does not frustrate the rebalancing itself.

"You have got to be very concerned that the best of intentions don't create a panoply of activity that chokes off the very energy and enthusiasm you are trying to encourage.

"But, yes, let them look at it."

He rejected calls by the Liberal Democrats and Labour for a "mansion tax" on high value properties, suggesting a higher council tax band would be fairer.

"I did look at another band in the council (tax) valuations when I proposed the abolition of the poll tax. It could be done, it would be incomparably fairer than a mansion tax, which is a confiscation tax on government's incompetence to control inflation."

But he added: " I would accept that a band higher than the one we have got isn't as damaging as a mansion tax but it's certainly not something I would go around arguing for."

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