One reading of the data released yesterday by the Government suggests Help to Buy has not made much of an impact on the property market yet.
Banks say they have approved 2,384 applications since the mortgage subsidy programme was hastily established by George Osborne in October. To put that into context, in September the financial sector approved 66,735 mortgages for house purchase.
That’s still well down on the pre-financial crisis approval rate, when banks were signing off more than 100,000 mortgages every month. Help to Buy will lift October’s approval figures, but not by a significant amount.
Yet there is undeniably something stirring in the property market as anyone who has walked past an estate agent’s window or glanced at the news headlines lately will know.
Nationwide building society says that average house prices across the UK were up 4.3 per cent on a year earlier in the third quarter. That’s the strongest rate of growth seen for three years. In London prices shot up by 10 per cent.
Help to Buy might not have shown up in the raw mortgage approval figures yet, but it does seem to have induced buyers to agree to higher asking prices.
The Bank of England and the Treasury’s Funding for Lending Scheme (which enables banks to borrow cheaply if they make more mortgages available) also seems to have boosted sentiment. Confidence seems to have come gushing back very quickly.
There has been a lot of chatter about a new property bubble. Yet this is misplaced. There are such entrenched structural constraints on the supply of new homes in Britain (land-banking by property firms and hostility to new developments by existing owners) and such strong demand for property (a rising population and more people choosing to live alone) that an imminent collapse of values is an unlikely prospect.
That certainly seems to be the view of the Bank of England’s Financial Policy Committee, which has the power to scrap Help to Buy if it thinks the policy poses a threat to financial stability.
Members of the committee have indicated they do not see a housing bubble forming at the moment. They might require some changes to the scope of the scheme, but unless banks start lending irresponsibly they are likely to leave the bulk of Help to Buy in place.
Yet that doesn’t mean the rest of us should be sanguine about it. Expensive housing is a longstanding curse for Britain. It locks up financial resources in unproductive brick-and-mortar assets. It impedes the mobility of workers around the country.
It requires buyers to take on high levels of debt, which could (should interest rates rise sharply one day) bring economic ruin to many.
It transfers resources from house buyers to house owners and – despite all the Prime Minister’s boasts yesterday of how his policy is helping first-time buyers – it tends to benefit the old financially at the expense of the young.
David Cameron argues that house building is rising thanks to his Government’s policies, implying that this will ultimately keep prices from spiralling.
But what he neglected to mention is that there remains an annual gap of around 100,000 between the number of new homes being supplied and the number required to meet demand. To claim that Help to Buy will rectify this lacks credibility.
A responsible government acting in the broadest national interest would not be subsidising mortgages and stoking demand for the present meagre housing stock, but taking radical action to increase the supply of new homes. Ministers would be designing a policy not of help to buy, but help to build.