CHRIS SELLARS, BANNER JONES DIRECTOR, LOOKS AT THE PROPERTY MARKET
House Prices: They Always Come Back!
The Help to Buy Scheme, recently introduced in the Government's last Budget, could create a dangerous new housing bubble, inflating prices 'almost 20 % within the next two to three years', a leading economic think-tank warned.
The scheme essentially extends an existing equity loan scheme to help people buy a new-build home with a deposit as low as 5%.
However, a report by Fathom Consulting run by former Bank of England economists - called it 'reckless', and said it could push average house prices as high as £300,000 by 2016.
'Help to Buy uses public money to incentivise the banks to lend precisely to those individuals who, without the scheme, would not and should not be offered credit,' said Andrew Brigden, a senior economist at Fathom. 'Had we been asked to design a policy that would guarantee maximum damage to the UK’s long-term growth prospects and its fragile credit rating, this would be it.'
A Halifax study found new-build house prices rose 3 % faster than other property over the last five years, up 12 % since 2007 to £233,822. That compared to 9 % rises for the rest of the market. New home values in the capital soared 29 per cent to £415,540 and in the South East by 17 % to £292,316.
Fathom warned Help to Buy could push prices up another 20 %, perhaps higher.
And if the cost of a home rose by as much as this, then a burst bubble and plummeting values would be 'inevitable' - and new build properties tend to lose value quickly, experts warned. The Table below shows the movement of new house prices in the last 10 years. The price drop in the East Midlands since the recession hit is the lowest in the country.
The scheme has faced similar flak from two other important groups - the Government's own independent forecaster the Office for Budget Responsibility, and the cross-party Commons Treasury Committee of MPs, which both also warned it could drive up prices.
The latter said it is likely to have a number of unintended consequences, including hampering first-time buyers - the very people it is targeted to help - by bolstering prices.
Its damning report said the scheme is 'very much work in progress' which may potentially land the Government with large losses on the mortgages it has guaranteed.
But a Treasury spokesman retorted: 'All mortgages sold under Help to Buy will have to meet clear criteria that ensure responsible borrowing. Nobody wants to see a return to the bad old days of 125% mortgages.
'The intention of Help to Buy is absolutely clear - it is for people who want to own their first home or move to a bigger home, not a second home. We're working with the industry on the details of the scheme to do just that.'
The latest Nationwide study last week showed house prices rising 0.9 % in April compared to the same month last year, the biggest annual increase in more than 12 months.
Mortgage availability has increased sharply - thanks as well to the Funding for Lending Scheme launched last August - and first-time buyers accounted for 43 % of house purchase loans in February, the highest proportion since the series began in April 2005.