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.