The approval rate for mortgage applicants has risen to is largest peak in over half a decade this September, according to Money Expert.
According to statistics from the Bank of England, over 65,000 mortgage applications were accepted last month, which represents the highest amount since February 2008.
The data follows the release of statistics by the Land Registry that indicate that property prices have risen in every area of the country, with the North East and London particularly impacted in the past month.
The figures will undoubtedly be pounced upon by critics of the governments Help to Buy scheme who will cite that the initiative is genuinely causing an artificial inflation in property prices and risks a ‘bubble’.
The scheme was implemented by the government in order to help young prospective property owners get onto the ladder by lowering the amount they have to pay on their deposit to 5%. Mortgage providers have also been encouraged to start offering 95% loan to value mortgages to help people afford property, whilst giving suppliers insurance by agreeing to guarantee 15% of each Help to Buy mortgage.
However, it has received a great deal of criticism in recent weeks with critics citing that increasing the demand so heavily without keeping the increase in supply at the same rate, will cause a artificial inflation in house prices. This will eventually lead to a ‘housing bubble’ that will eventually burst and leave the state of the property market in worse stead than it was before.
Rob Wood, chief UK economist at Berenberg Bank has reiterated this sentiment and has warned that the scheme risks long term repercussions that could be severely damaging to the housing market.
“All the stimulus thrown at the housing market risks starting another dangerous boom-bust cycle,” he said.
“The key issue is not where prices are today; rather it is where they will be in a couple of years. Prices and activity are rising fast now. We expect house prices to rise 10% year-on-year next year … The measures that selectively boost the housing market, like the Help-to-Buy scheme, should be scrapped,” he added.
Chancellor of the Exchequer George Osborne has moved to address recent criticism by tasking the Bank of England with monitoring the effects it has on the property market and producing a report in a year’s time.
Howard Archer, economist at IHS Global Insight, has argued that the statistics make it more pressing than ever for the government to be monitoring the housing market.
He also argued that the impact of the Help to Buy scheme might have been exaggerated with other reasons being key to the recent property rises. He outlined that things such as lower mortgage rates, and rising consumer spending have been understated too much.
“We are currently a long way off from an overall housing market bubble emerging. Nevertheless, there is a mounting danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted appreciably further by the Help to Buy mortgage guarantee scheme,” Archer said.
However, another leading UK economist, Samuel Tombs, has moved to downplay the risk of a potential bubble citing that the current approval rates are vastly inferior to the ones being displayed prior to the economic downturn. He highlighted that there had only actually been a £0.3 billion increase in the amount of money lent through mortgages since 2011 and this was markedly less than the equivalent figures before the recession.
“Given that interest rates on Help to Buy mortgage products look expensive and lending criteria are strict, we doubt the scheme will boost mortgage demand much. Note too that banks appear to have little appetite to substantially increase the size of their mortgage books,” Tombs said.
“For now, then, there remains little evidence that a renewed boom in the housing market will lead to a bubble’.