With the news surrounding the housing market news increasingly positive, questions are being asked about the Government's Help to Buy Scheme. Is the scheme creating the start of another housing bubble and how much longer should it continue?
So here are my views on the future of Help to Buy
What is Help to Buy?
Help to Buy is a government backed scheme to help prospective home owners purchase a property with as little as 5% deposit. There are two parts to the scheme, equity loans and mortgage guarantees. A full explanation of how the schemes work can be found in our article Help to Buy scheme explained.
Why was Help to Buy introduced?
With the housing market stuck in the doldrums due to a lack of mortgage finance the government introduced the Help to Buy to encourage lenders to issue more higher loan to value mortgages. Lenders had been reluctant to offer 95% mortgages due to the uncertainty in the housing market and the inherent risk in these higher loans.
What is happening in the housing market today?
According to the Office of National Statistics, in the 12 months to November 2013, the average house price in the UK rose by 5.4% to the current level of £248,000. Whilst this increase in prices has been mainly driven by London and the South East there are now indicators that the price increases are spreading to all parts of the UK.
Is there likely to be a housing bubble soon?
It appears that the second phase of Help to Buy (the Mortgage Guarantee Scheme), which launched in October 2013, came just at a time when the housing market was already on an upward trend. This upward price trend is set to continue into 2014 with predicted house price rises of around 8% for the full year fuelling fears that prices are rising too quickly, causing a housing bubble. Add into the mix that there is a shortage of housing in the UK to meet the demand over the next few years, then it is understandable that concern is being raised about rising prices.
However, if house prices start to get out of control the Bank of England has a couple cards they can play to calm down these rises.
- raise interest rates, for more information read our article - When will rates rise?
- call for changes, or the end, to the Help to Buy scheme
When will Help to Buy end?
The Bank of England have scheduled to examine the Help to Buy scheme and its impact in September 2014 so I cannot see any changes before that date. With the next general election due to take place sometime in 2015 it is unlikely that the Help to Buy Scheme will be withdrawn leading up to the election as this will be a certain vote loser.
There is however the option of amending the current scheme in September by reducing the top level of house purchase price from £600,000 to around £300,000, closer to the average house price.
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