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BoE should cap house price inflation, say surveyors

LONDON (Reuters) - The Royal Institution of Chartered Surveyors has called on the Bank to limit annual house price inflation to 5 percent to prevent another property bubble.

Such a policy, it says, could be implemented by imposing caps on loan-to-value ratios, loan-to-income ratios, or ceilings on the amount banks are permitted to lend.

The request - an unusual one from an industry group that typically benefits from rising prices - comes months before the government begins to offer mortgage guarantees to riskier homebuyers under its controversial "Help to Buy" scheme.

Property prices are already rising at more than 5 percent a year according to mortgage lender Halifax, and the RICS has joined a chorus of voices warning that price rises could become unsustainable.

Figures from LSL/Acadametrics on Friday showed a 30 percent rise in the number of first-time buyers.

"Sending a clear and simple statement to the public that the Bank will not tolerate house price rises above five percent would help restrict excessive price expectations across the country," the RICS report said.

"This policy would discourage households from taking on excessive debt out of fear of missing out on a price boom, and discourage lenders from rushing to relax their lending standards as they compete for market share."

The industry group notes that limits on property price inflation have been used by a variety of countries, including Canada between 2008 and 2012, when Bank Governor Mark Carney headed the country's central bank.

Under Carney's watch, Canada's national regulator the amount buyers could borrow in relation to their deposit and imposed more stringent credit checks - measures that appeared successful in bringing price inflation back down.

At a hearing before lawmakers on Thursday, Carney said that although Britain's central bank lacked formal powers to force banks to do the same, it could issue strong advice that they rein back lending.

However so far the Bank has not identified a bubble in house prices. Its Financial Policy Committee is charged with spotting risks building up the financial sector and acting to head them off.

(Reporting by Christina Fincher; editing by Ron Askew)