Help to Buy 'fuelling a new housing boom'
Fears of another property bubble as prices leap in May at their fastest rate for six years.
Friday 31 May 2013
Fears that George Osborne's Help To Buy scheme could lead to a new housing bubble have been exacerbated by new figures showing that house prices grew faster in May than at any time in the past six years.
According to Hometrack prices rose 0.4 per cent last month, the most since May 2007. The Nationwide house price index, based on the building society's lending data, also recorded a 0.4 per cent rise in May.
The house price increase comes at a time when Help To Buy, unveiled in the March Budget, has come under increasing attack.
Critics, including the outgoing Bank of England governor Sir Mervyn King, the Royal Institution of Chartered Surveyors, the Organisation for Economic Co-operation and Development, and various campaigns for affordable housing, have warned that Help To Buy risks fuelling a new housing boom.
Help To Buy is designed to boost mortgage lending and help buyers with small deposits get on the property ladder. But it's been dubbed "help to sell" by groups campaigning for affordable house prices.
One such group, Priced Out, says the main Help To Buy winners will be developers and existing homeowners, including landlords, who will find it easier to sell at inflated prices.
"Pumping more money into a housing market with chronic undersupply has one surefire outcome – pushing up house prices. At best it may help a small number of new buyers, but it will mean housing becomes more expensive for all those that follow," said spokesperson Duncan Stott.
"The major problem faced by first-time buyers is high prices and the daunting levels of debt needed to enter homeownership. Of all the policies you could think of to tackle this, it is harder to think of a riskier or more short-term policy than Help to Buy."
Help To Buy comprises two parts: shared-equity loans and a mortgage guarantee. The shared-equity part of the scheme has already begun and offers a 20 per cent equity loan to anyone, not just first-time buyers, buying a new-build home, meaning they can do so with just a 5 per cent deposit. The guarantee part of the scheme starts in January 2014 and will incentivise lenders to offer those with smaller deposits better mortgages, because the Government will guarantee 15 per cent of the loan.
Both parts of Help to Buy are set to run for three years but Sir Mervyn has warned the scheme must not become permanent. He says Help To Buy is "too close for comfort" to the United States mortgage guarantee schemes that triggered the financial crisis and should not be extended in three years' time.
But although Mr Osborne has insisted Help to Buy is not aimed at pushing up prices, experts say encouraging first-time buyers to take out mortgages with high loan-to-value ratios will do just that. The OECD has warned that "without a sufficient supply response, some measures could create upward pressure on house prices".
Help To Buy isn't the only one of the Chancellor's schemes that has come under attack recently.
In April the Bank of England gave the go-ahead for banks using its Funding For Lending scheme to lend the money to property investors. To encourage banks to lend, every pound of additional net lending to SMEs, including landlords, during the remainder of this year will entitle them to £10 of access to cheap funding and £5 next year.
Danny Gabay, a director of Fathom Consulting, has described FLS as "funding for letting" and claimed that it is contributing to growth in "the buy-to-let sector at the expense of first-time buyers".
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 3 Reading Festival 2014: Tesco branch replaces salad and potatoes for Jagermesiter and vodka
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Ukip MEP calls for reintroduction of death penalty on fiftieth anniversary of last deaths
Russell Brand calls for Israel boycott: Comedian urges big businesses that 'facilitate the oppression of people in Gaza' to pull funding
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
iJobs Money & Business
£475 - £550 per day + competitive: Orgtel: Senior Technical Accountant-Insuran...
£200 - £290 per annum + competitive: Orgtel: Sales Performance Manager, Key Ba...
£25000 - £30000 per annum + bonus+benefits+package: Harrington Starr: Junior D...
£600 - £800 per day: Harrington Starr: Java/Calypso Developer Java, Calypso, ...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony