A government home buying scheme designed to help would-be buyers onto the property ladder could act to drive property prices up by a staggering 30%, according to a new report.
The report by former Bank of England economists argues that the Help to Buy scheme, which offers all buyers the chance to snap up a new build home with a 5% deposit and a 20% equity loan from the government, could see the cost of a home rise by 30% by 2015.
The economists from Fathom Consulting argue that it is the very fact that few people can afford to become homeowners that is ‘keeping a lid’ on the average house price, which currently stands at a figure of £233,000.
As the Help to Buy scheme could makes the prospect of owning a home more achievable for those in the UK it could act to ‘reignite the housing market bubble’, according to the report.
Andrew Brigden, a senior economist with the group, said: “Help to Buy is a reckless scheme that uses public money to incentivise the banks to lend precisely to those individuals who would not and should not be offered credit.
“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.”
The report comes in the wake of warnings from the Office for Budget Responsibility which argued that the Help to Buy scheme could inflate house prices, creating a gulf between increased demand and supply.
The Committee’s chairman Andrew Tyrie said: “The government’s Help to Buy scheme is very much a work in progress and it may have a number of unintended consequences.”