Help to Buy scheme may 'give with one hand and take with the other' by pushing costs up by 11% by the end of 2016.
George Osborne's policy of kickstarting the housing market with subsidised mortgages could inflate prices to pre-crash peaks and sideline the first-time buyers it is designed to help, according to a group representing some of the UK's biggest banks and building societies
In the latest warning about the impact of the Help to Buy programme, lenders said property prices could rise by 11% by the end of 2016, with artificially inflated valuations the biggest threat to its success. Without a housebuilding programme to address the extra demand, property prices could spiral to new highs, said the Intermediary Mortgage Lenders Association.
"If house prices continue to rise for the duration of the scheme, then in essence we will be giving with one hand and taking away with the other," said Peter Williams, executive director of the IMLA and director of the University of Cambridge Centre for Housing and Planning Research.
House prices in London are above their 2007 peak, according to the Nationwide building society, but taken across the entire country they remain 9% lower, as IMLA warned that under the scheme the average UK home would cost £180,256 by the end of 2016. That would take average prices close to 2007 peak of £181,975.
The Help to Buy scheme, announced by the chancellor in March, aims to grant mortgages to homebuyers with a deposit of as little of 5% of a property's price.
The first part of the programme, which allows buyers to subsidise purchases of newbuild homes with an interest-free loan from the government, launched in April. It has been credited with reversing a fall in housebuilding and boosting consumer confidence. However, the second part, which will be introduced at the start of 2014 and will offer a taxpayer-backed guarantee to lenders who offer mortgages worth up to 95% of the property's value, has attracted criticism from economists, politicians and other commentators, who have warned it could fuel a house price bubble. Albert Edwards, who heads the global strategy team at Société Générale, described it as a "moronic policy".
IMLA, whose members include subsidiaries of Santander, Barclays and Nationwide that offer mortgages through brokers, said 60% of its members believed the scheme could be undermined by a house price bubble.
While all respondents agreed first-time buyers had the most to gain from the second part of the scheme, they are likely to be the hardest hit by a rise in prices to 2007 levels. This would push the cost of a 5% deposit from £8,321 at the end of this year to £9,013 by the end of 2016.
A recovery in the housing market has accompanied a turnaround in the economy since the beginning of the year. GDP has risen by 1% in the first six months, with most sectors of the economy showing they expanded compared to last year.
However, the TUC is warning that a rise in UK population, by 2.3 million to 63.7 million over the last five years, means the benefits of GDP growth have been spread over a greater number of people. According to a TUC analysis, GDP per head is still 0.7% lower than when the coalition took office and 7.5% lower than the UK's peak level in late 2007.
The TUC's general secretary, Frances O'Grady, warned that the recent burst of borrowing by consumers to fund everything from house purchases to the weekly shop was based on extra debt and not on a rise in incomes.
She said: "Too many people are having to run down their savings or turn to credit cards to spend in the shops, rather than see their incomes grow. And behind improving employment figures are millions of workers whose incomes are falling and who can't get enough hours to make ends meet.
"We all want to see the UK economy back on track but any talk of recovery is meaningless unless we get the right kind of growth."
The current level of GDP per head at £23,728, is mere 0.7% higher than at the lowest point of the recession in September 2009, the TUC said.
Article Source: http://www.theguardian.com/money/2013/aug/28/george-osborne-housing-policies-damage
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