Experts today warned that the Chancellor’s flagship Help to Buy scheme could lead to another house price bubble.
The policy of kickstarting the UK’s housing market with subsidised mortgages could inflate house prices to pre-crash peaks and alienate the very first time buyers it has been designed to help, according to a group representing some of the UK’s biggest banks and building societies.
Launched in April of this year, the scheme sees the Government providing an equity loan of up to 20 per cent of the value of a property up to £600,000. Based on Land Registry data of sales in the first half of 2013, lenders are already forecasting it will push the average house price up by 2.7 per cent by the end of this year.
That would push the average house price to £166,418 by the end of this year and a further increase to an average price of £180,265 by the end of 2016. Such an increase would mean that house prices would be within touching distance of their pre-crisis peak in 2007 at £181,975.
The Intermediary Mortgage Lenders Association (IMLA) found that 60 per cent of mortgage lenders and advisers feared another house price bubble.
IMLA said there were many lenders who are concerned about the rate of growth after the launch of the second face of the Chancellor’s Help to Buy scheme, which could result in the treasury underwriting up to £130billion of mortgage lending over three years, starting in January 2014. Concerns have also been raised over the market possibly becoming reliant on financial support from the Government.
Peter Williams, executive director of the IMLA, said “If people are struggling to raise deposits in the current climate then a further 11 per cent increase in house prices will lift the property ladder even further out of reach for some. The Government will, in essence, be giving with one hand and taking away with the other.”
Earlier this month, European and UK economist Howard Archer of IHS Global Insight said that the Government should consider dropping the extension of Help to Buy in January; “Should the housing market gain substantial momentum over the coming months, the case for dropping the Help to Buy mortgage guarantee scheme, will strengthen”, he said.
While most lenders and building societies agreed that first-time buyers had the most to gain from the second part of the scheme, they are also likely to be the hardest hit by a rise in prices to 2007 levels. This would push the cost of a 5% deposit from £8,321 at the end of this year to £9,013 by the end of 2016.
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