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Pickles attempts to prick housing bubble fears

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Communities Secretary Eric Pickles has moved to quash speculation that Government efforts to stimulate the housing market risk inflating another housing bubble.

The first part of the Government’s Help to Buy scheme offers buyers a 20 per cent equity loan, interest-free for five years, on new homes worth up to £600,000, with buyers putting down a deposit of just 5 per cent.

Help to Buy is set to be extended to include existing properties in January and will run for three years. This second element of the Government support is a £130bn mortgage indemnity scheme for new and existing homes where the Government guarantees up to 15 per cent of the purchase price, with the borrower putting down a deposit of between 5-15 per cent.

Yesterday, data from the Office of National Statistics said house prices had risen 3.1 per cent in the year to July, up from a 2.9 per cent increase in the year to May.

The Financial Times reports Pickles saying the Government’s housing stimulus is working, with “house building and housing supply on the up”.

He said: “The tough decisions we have taken on the deficit are now delivering a sustainable increase in housing and providing real help to hard working people.”

Yesterday on the BBC’s World at One programme, Conservative MP and Treasury select committee member Mark Garnier said any risk the stimulus could create a bubble is negated by the Bank of England’s new Financial Policy Committee.

He said: “They have the power to turn the scheme off if they are concerned about it.”

Barratt, the UK’s largest house builder said it had spent £1.05bn on new land in the past year, almost double what it spend in the previous year.

A spokesman added: “If you look at what people are saying externally, there is a worry about a bubble being created by Help to Buy. But the reality is that it is not going to have a big enough impact to cause that.”

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  1. Nonsense.

    The UK Residential housing market has for a long time been artificially supported at unsustainable levels through easy (to and beyond the point of dangerous) availability of credit.

    The subsequent sub prime debacle and financial collapse of the late 2000’s was an entirely inevitable consequence of this. The terrifying thing is that the government has failed to acknowledge this and is looking for increasingly convoluted ways to ‘grease the wheels’ of a broken market in an effort to maintain these hideously bloated valuations.

    Last time I checked, the average UK wage was something like £26k pa. On a straight 3x multiplier, which has for time immemorial been a de-facto standard for mortgage lending, that would give the average UK citizen a potential mortgage of £78k. Slap on a £15k deposit and you should have the average UK citizen approaching the market for houses valued around £90k – £95k. In June 2013 the Land Registry reported the average property price in England and Wales to be £162,621. This is so far past the point of ‘affordable’ as to frankly be laughable and it is no wonder that we now have an entire generation of people in their 20’s and 30’s effectively excluded from the housing market and completely reliant on either living with relatives or renting.

    Quite simply, until we collectively accept this and allow the market to correct to these levels, we court disaster at every turn.

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