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Help-to-Buy could spark 30% surge in house prices

The Government’s Help-to-Buy scheme risks pushing up house prices by nearly 30 per cent over the next three years, according to a group of economists.

Macroeconomic consultancy Fathom Consulting says the scheme is “reckless” and offers incentives to lenders to issue mortgages to people who “should not” be offered credit.

The consultancy estimates house price inflation potentially stands to rise by around 12 per cent by the end of 2014 and by a further 18 per cent by the end of 2015 as a consequence of the scheme.



The average UK mix-adjusted house price in February was £233,000, according to the Office for National Statistics. A 30 per cent increase would take the average price of a house in the UK above £300,000 by the end of 2015.

Fathom Consulting senior economist Andrew Brigden says: “The Help-to-Buy scheme has the potential, in our view, to cause a significant house price response, but only if potential home owners buy into the idea that a further rise in house prices is sustainable. The flip side, of course, is that it also has the potential to take indebtedness in the UK household sector back to record levels, just as the deleveraging process appears to be getting under way.”

The Help-to-Buy scheme combines two measures designed to stimulate mortgage lending. The first proposal came into effect in April and allows borrowers with a 5 per cent deposit to secure a 20 per cent loan from the Government.

The second measure is a £130bn commitment to mortgage indemnity guarantees which comes into effect from January 2014.



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Dathan Steele 7th May 2013 at 7:47 pm

    Constructing another housing boom to help the Tories win the next election will not solve the huge problems in the UK housing market. Actually, it will have the opposite effect. This is not a party political rant, I’d say the same if Labour was doing this.

    The seemingly insurmountable problem is that people simply can’t afford to buy property, as the link between average earnings and average property prices is long dead. The effects of this are most sharply felt at the first time buyer level, which has of course a knock on effect for the whole market. However, to re establish this link it would take a sharp fall of house prices across the board, meaning that a lot of people would either lose their homes, or end up paying a mortgage on a property worth a lot less than they paid for it.

    So, not sure if there is an answer. If you build more houses, this will have the effect of increasing supply and therefore reducing prices.

    So, stoke up the fires of another housing boom, make everyone feel rich and kick the can down the road?

  2. Duncan Carter 8th May 2013 at 4:56 am

    ………..and I agree.

    The housing market myth has twice in the last 20 years caused chaos in the economy. Has anyone remembered that it was reckless lending that caused the financial crisis?

    So, bereft of any other ideas the government wants some more of this through its’ one trick pony approach to solving the economic woes that caused them in the first place. Madness.

  3. I suspect there is greater optimism on Help to Buy than it warrants…..

    The rates, products, underwriting are no leaner or easier than the recent 95% options seen from the likes of Newcastle, Hanley Economic or Darlington… Outside of the NewBuy/ HelptoBuy schemes, most lenders restrict New Build to 80% or 85% ltv.

    There appears to be a significant hole in the New Build options given the erroneous (and sometimes inconsistent) criteria and MI reporting requirements laid down by HCA and Lenders alike.

    For New Builds with smaller developers, it seems that none of the current schemes will allow any buyers (let alone First Time Buyers) to purchase New Build at 95%, save for the Darlington with product fee of ~1% and MIG charge all payable up front – and entirely unworkable in practice.

    These schemes again seem to be nice in theory, but the practical applications fail miserably.
    Talk therefore of this causing the boom or surge in house prices seems somewhat misled…

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