It would appear that some at the Bank of England aren't that stupid...

Subsequent to my recent post, Surely, the Bank of England is not that stupid? (the BoE said banks should increase mortgage-to-income multiples if house prices rose), comes this in The Telegraph (also emailed in by Lola):

Ultra-low borrowing costs have fuelled a huge property boom that pushed house prices beyond the reach of young buyers, the Bank of England has warned.

A five-fold surge in house prices over the past 50 years can be “more than accounted for by the substantial decline” in the cost of borrowing, according to research by the Bank.

Its economists warned that even a housebuilding spree would not have stopped a huge rise in prices caused by the long-term plunge in rates - undermining claims that Britain's property bubble has been caused by a lack of new homes.

I assume that they are referring to this Staff Research Paper, which goes into a lot of detail, but can be summarised as follows (exactly as we explain it):

a) Rent as proportion of average gross earnings is very stable, bobbing around at 35% - 40% for the past three decades (Figure 10). So it can't be 'lack of supply' otherwise rents would have increased faster.

b) Rent (a constant) divided by required monthly repayment rate (interest + principal) = mortgage.

c) Mortgage + deposit = house price.

The paper does not seem to make recommendations, although you'd have thought those are obvious...