Help to Buy is risking ‘bubble’ burst

dollarsHelp to Buy is risking ‘bubble’ that UK cannot afford to let burst

Help to Buy could potentially have a devastating impact on the property market, the chief executive of Lloyds has warned.

António Horta-Osório stated that: “It is important that planning permits, building authorisations and social housing projects are liberalised so that the increase in mortgage transactions does not lead to a substantial increase in house prices.”

The government initiative was introduced in order to aid prospective property owners and first time buyers to get onto the property ladder. Currently many people have enough money to afford to make their mortgage payments but still cannot acquire the property they want due to the huge costs of deposits. The scheme has sought to reduce the amount house buyers pay on their deposit so that more people are able to afford to buy a house.

Under the scheme consumers can now enjoy obtaining a property by only having to pay a 5% deposit on houses worth up to £600,000. The government also guarantee’s 15% of mortgages given out by banks as a form of insurance for lowering the deposit requirements for property purchase.

However, the Lloyds head has identified that it is the places outside of London and the South East of England that are in the most need of the promotion of Help to Buy mortgages.

The claims come just days after Barclays became the latest bank to sign up for the scheme, with giants RBS, Halifax and Lloyds all already offering help to buy mortgages.

However, there has been much discussion amongst figures in Lloyds about whether the scheme should apply to property up to £300,000 instead of £600,000 in order to decrease the affect the scheme might have on house prices across the UK.

Many commentators across the UK have highlighted that the scheme might cause an artificial inflation in house prices due to the increase of demand that it is causing. It is thought that because the rate of demand will far surpass the rate of house building that prices of houses will raise. This would mean that the initiative would be counterproductive because people would have to overpay for any property they buy meaning the decrease to the deposit would have little impact on saving people money.

However, government officials have moved to support the scheme with Liberal Democrat Treasury Minister, Danny Alexander, calling critics to ‘get out more’ to the multitude of places across the country where house prices are not increasing at all.

They have also pointed to data from a recent survey by Halifax that has indicated that house prices are currently increasing faster than they have done in 3 years. The average price has risen by 6.2% in the last year, representing a rare improvement in the past few years.

Richard Banks, the head of Northern Rock and Bradford & Bingley has also identified the merits of the scheme in a recent interview with the times. He outlined that the property increase could actually aid consumers by helping them pay of their high loan-to-value mortgages.

“If house prices go up outside London, it is a good thing for us as quite a few of our customers are trapped by their high loan-to-values,” he said.

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Posted by: Jessica Odell Categories: Industry News, Property News Tags: , , 7 Comments

7 Responses to Help to Buy is risking ‘bubble’ burst

  1. avatar Chris Mitchell says:

    This isn’t rocket science. A first time buyer on the bottom rung of the property ladder would not be looking at property worth up to 600K. Totally unreal. If you can afford to buy a house of that value, you certainly don’t need a helping hand! Once again our politicians have proved they live in cloud cuckoo land.
    It is also seems obvious that the assistance should be targeted at areas where the housing market is frozen, ie: not the SE.

  2. avatar Rob Slack says:

    “get onto the property ladder.”

    Please can we STOP using that dreadful expression.

  3. avatar mike hill says:

    does the 15% reduction on the mortgage from the Government have to be paid back at some stage?
    Also …what is the % rate of interest on these mortgages? eg a house worth 130k ?

  4. avatar Alan Jones says:

    Whoever thought of the figure of £600,000 should get out more Mr Alexander!
    In the North West a ten year old 4 bed property of 1300 square feet is on offer at £240,000 and people still struggle to find the deposit.
    They are the ones who needed this support…not the ones who live in the other country of London and its surrounds!

  5. avatar George Raymond says:

    What idiots we have in government. Can’t they see that the only real solution is steps to get property prices REDUCED? The steady reduction in mortgage rate, coupled with the catastrophy caused by irresponsible bankers (who get off scot free) and pushy estate agents have caused all this. Time for a change – srart to raise interest rates immediately before we get another bubble to satisfy commission hungry agents.

  6. avatar alex grimshaw says:

    i fear the repayments on the higher purchase prices will spell disaster for the market . I can foresee that once the assist to buy scheme ends and buyer have to start paying back the extra 15% LOAN and also the increased morage rate after the low intial rates then the market will crash far worse than ever before. It’s setting buyers up to fail. As house price are at such a high cost to wage ratio now there is no way i can afford to buy long term. i think the right to aquire discounts need revisiting and increased with the money made from the sale of social housing being used to build new property and increasing stock levels.

  7. avatar Maritn Spindlow says:

    could this not potentially lead to a drop in prices in the long term (when the bubble bursts) and therfore leave people in negative equity because of the small deposits being offered alongside what is effectively a loan from the government?

    This just seems like a sure fire way to crush the UK economy in the long term and force a downturn of prices effectively leaving new home owners in unpayable debt. This partnered with the high chances that the base rate may increase and further lead to extreemly high payments which are unaffordable just seems like a receipe for disaster.