Scottish House Price 'Reality Gap' Narrows

This article by BBC News on November 11th, 2013 reveals the new report that buyers are willing to pay more than they actually achieve.

 

S1homes said buyers were now prepared to pay more than they had been "for quite some time" 

 

The gap between what Scots hope to sell their properties for and the price they actually achieve has narrowed, according to a new report.

Property website S1homes found the "reality gap" narrowed in Scotland from 9% to 2% in the third quarter.

The change was driven by an increase in the amount buyers were prepared to pay, and not a drop in prices.

The S1homes report compared average asking prices with officially-registered settlement prices.

It found that the average selling price in Scotland increased by more than £8,500 to £161,748 in the third quarter, while, on average, properties sold for about £4,000 less than their asking price. The difference in the previous quarter was £14,500.

However, there were significant variations between the top and bottom of the market, with all property types except detached homes achieving more than the asking price.

Flats continued to perform well across Scotland, selling on average more than 17%, or £19,000, above their advertised price.

Terraced and semi-detached houses also sold well above what sellers hoped to achieve.

But detached properties continued to sell significantly below their asking price despite an increase in the average selling price during the quarter.

The average asking price for properties fell in most areas, except for East Renfrewshire, Fife and West Lothian.

In Edinburgh, the average selling price overtook the advertised price, due to an increase of 4.5% in the amount homes were sold for.

S1homes commercial director Ewan Stark said: "This quarter's report shows that there have been significant changes taking place in the property market.

"Buyers are now prepared to pay more than they have been for quite some time and that, coupled with a slight decline in average asking prices, is what has led to the upsurge in the volume of properties being sold.

"That's positive if you're looking to sell a property but the sharply rising prices at the lower end of the market aren't good news for first-time buyers."

Article Source: http://www.bbc.co.uk/news/uk-scotland-scotland-business-24865606

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Opportunities as the UK Property Market Comes Back to Life

This article by Richard Watt of Money Observer on October 16th, 2013 reveals that property market in the UK has now regain its life and eager for further developments.

Housing has a unique place in the UK economy. There is a special sense of fulfilment in home-ownership.

‘First-time’ buyers have a priority on the political agenda, while rising home values translate to near-instant voter gratification. A revival in the housing market is front-page news.

This national attitude to our homes creates a number of anomalies. One is the traditional approach to investing in the housing market through direct purchase, buying or upgrading a home or taking on buy-to-let. Home-ownership can be immensely rewarding, but a house is a particularly illiquid investment, while mortgages create a conduit from Bank of England base rates to disposable income that is short, brutal and sometimes nasty.

The flotation of Foxtons, the London-area estate agent, is a sign that the equity market is increasingly providing an alternative route to participation in the property market. A basket of shares might not keep you warm at night, not in a literal sense, but it is a lot more liquid, shouldn’t require a six-figure mortgage and its sensitivity to interest rates is a little less direct.

The Foxtons IPO was heavily over-subscribed, rising 16 per cent on the first day, valuing the business at more than £650 million. Foxtons has some 40 offices, mainly in central London. It is an exceptionally well-run company, with special strength in marketing. The average price of its house sales is £400,000, which puts it in the sweet spot in terms of transaction growth as the recovery develops. It is the right section of the market for the second phase of Help to Buy, which will provide mortgage indemnity for homes worth up to £600,000. In our view, Foxtons is in a position to increase its footprint potentially to 100 offices and possibly more.

Foxtons is not the first estate agent to come to the market. Countrywide floated in March and has outperformed the FTSE All Share (ex investment trusts) by 40 per cent since then (to 24 September). Savills, since its near-term trough in the midst of the eurozone crisis on 4 October 2011, has outperformed the FTSE All Share by 134 per cent.

Estate agents are an interesting and expanding area of the equity market, but the heart of the sector in equity terms is the housebuilders. The sector has seen tremendous outperformance in recent years, with key companies such as Persimmon and Barratt Developments, which over the past three years have outperformed the FTSE All Share by 126 per cent and 156 per cent respectively. In our view, despite inevitable set-backs, the sector should continue to offer robust, market-leading returns.

Current demographics suggest the demand for new housing in the UK should run at around 260,000 units per year, but the market is only supplying half that, around 130,000. It is highly unlikely that supply will reach, let alone overtake demand, on almost any scenario.

The block has been financing, with capital constrained banks requiring significant cash deposits. The government – and everybody who reads a newspaper or watches television or listens to the radio – is aware of this and given the economic benefits of house-building it has taken some bold measures.

The first phase of Help to Buy, under which the government lends new home-buyers 20 per cent of the price towards a 25 per cent deposit, is already having a significant impact, with 30 per cent of new-built homes being reserved through the scheme.

The second phase starts in 2014, providing mortgage guarantees, and should stimulate the market further. The schemes are intended as temporary kick-starts, but the first phase is proving so popular its £3.5 billion funding is likely to expire at some point in 2015 – a date whose proximity to the next election suggests to us it could be replaced, should need arise, by something either as good or better. In the meantime, the banking sector should by then be further on the road to recovery, opening the possibility that affordable commercial mortgages will increasingly become available.

A less publicised but important change is in planning law. Under the new National Planning Policy local authorities are required to maintain a five year plan. In the absence of such a plan, where any planning application is denied, it will be automatically granted on appeal.

This has unleashed fresh tracts of buildable land, a flow unlikely to be completely staunched as plans come to be adopted more widely. So much for the environment – what about the stock specifics? Housebuilders have done well – is there more to come? In my view there is and the numbers tend to support a positive argument. The key decision is whether the UK property market will continue to recover into the medium to longer term.

Let’s take Barratts as an example. We believe it is capable of achieving a return on equity of around 18 per cent on a two to three year view as it builds out land acquired in recent years at attractive profit margins. We expect the industry to be building around 170,000 units a year by the end of this period, significantly higher than current levels but still well below the demographic requirement. From this level, it fair to assume that Barratts’ unit sales can continue to grow at relatively modest minimum of 4-5 per cent a year – given natural demand, government support and ongoing economic recovery – that would leave Barratts with around 75 per cent of its earnings free to distribute as cash to shareholders, which at current share prices implies a dividend yield at around 10 per cent. That is a high yield for a well-run business in a growing market and we would expect most investors to accept something significantly lower, possibly down to around 5 per cent – and that, in turn, implies a much higher share price.

One of the most satisfying aspects of investing in UK mid-cap equities is the dynamism and variety of the opportunities. As the property market comes back to life, it is likely there will be mid-cap companies there to reap the benefits. And as they say in the property business – we are eager for further developments.

Article Source: http://www.moneyobserver.com/news/13-10-16/opportunities-uk-property-market-comes-back-to-life

Bank of England Signals Caution Over Help to Buy

This article by Hilary Osborne of theguardian on October 16th, 2013 reveals BoE's concern on the impact of Help to Buy that cause housing prices to rise.

Concern at the Bank of England about the impact of the government's Help to Buy mortgage scheme came to light on Tuesday as official figures showed the British property market has exceeded its 2008 peak.

Martin Weale, one of nine members of the Bank's rate-setting monetary policy committtee (MPC), warned that the scheme to underwrite home loans could push up prices.

Admitting that house prices were already rising "appreciably more rapidly" than had been expected, Weale said there was a risk that "if the mortgage-guarantee element of Help to Buy is not priced satisfactorily, it will add to demand while supply is weak, leading to increased pressure on prices".

The British property market hit a record high in August, according to the latest figures from the Office for National Statistics (ONS), which showed the average cost of a home is now almost £250,000.

The ONS data showed that even before the launch of the second phase of the mortgage-guarantee scheme, house price growth was gathering pace.

Its main index, which measures the price paid in purchases financed with mortgages over the month, surpassed its previous peak by 0.3% to hit 186 in August. That was its highest level since its launch in 1968. It put the average price of a home in Britain at £247,000.

In written evidence to the Treasury select committee, Weale said a booming property market could distort the economy. "Rising house prices may make people feel cheerful and more prosperous, thereby supporting household spending," he warned.

"But rising house prices impose a burden on those who do not yet own houses but aspire to in the future. Like government borrowing, rising house prices can crowd out productive investment."

Weale's submission was published 24 hours after the incoming deputy governor of the Bank, Sir Jon Cunliffe, said Threadneedle Street would keep a "very firm eye" on lenders as Help to Buy was rolled out.

However, Cunliffe said it was "too early to say we are entering into a bubble".

The second part of the Help to Buy scheme, which offers lenders a taxpayer-backed guarantee to encourage them to offer loans to borrowers with small deposits, launched last week and has already prompted a flurry of mortgage applications from homebuyers.

Royal Bank of Scotland, which was the first lender to offer 95% mortgages through the latest phase of the scheme, reported that it had booked 5,000 appointments with prospective borrowers in the first three hours after the launch and taken 10,000 calls in the first four days – double its usual volume. It has extended branch opening hours to cope with demand.

According to the ONS figures, the rate of house price inflation increased through the summer, with the year-on-year increase reaching 3.8% in August, up from 3.3% in July.

However, the growth figures harboured wide regional disparities: the year-on-year increase reflected growth of 4.1% in England, 1.1% in Northern Ireland and 1.0% in Wales, in contrast to a fall of 0.7% in Scotland.

The ONS noted that the capital remains a strong outlier in the property market.
It said that while "house price growth remains stable across most of the UK … prices in London are increasing faster than the UK average".

Its index showed prices in London rose by 8.7% in the 12 months to August and that, when figures for the capital and the rest of the south-east were stripped out, UK house prices were up by 2.1% over the 12 months.

Only in London and the south-east were prices higher than at their previous peak. However, the east of England and the south-west were coming close to that level, the ONS said. The ONS data showed that new entrants to the housing market have seen a steeper rise in prices than homemovers, with prices paid by first-time buyers up 4.9% on August 2012's figure, compared with a 3.3% rise for movers.

In August 2013, the average price paid for a house by a first-time buyer was £185,000, while existing owners paid an average of £283,000.

Despite the headline figures suggesting that prices are running away, economists said activity was still well below the levels recorded before the financial crisis began, and only London was giving real cause for concern.

Howard Archer, chief UK economist at IHS Global Insight, said: "While the strength of house price rises in London is becoming an increasing concern and pushing up the overall national increase in house prices, the ONS data support the view that we are currently a long way off from an overall housing market bubble emerging.

He added: "In fact, in many areas house prices are still well below their 2007 peak levels and rising only modestly at the moment." Housing eceonomists at Capital Economics said the ONS figures were "weighted towards high-value homes and therefore the very strong London market. On most measures, prices are still 10% to 15% below their previous peak."

However, they ackowledged that price rises had outstripped their expectations and that in the short term Help to Buy could give a "significant boost" to the number of buyers.

"While we suspect many will fail the affordability tests, it will put some upward pressure on prices," they said.

"There is a risk that expectations of a new house price boom will become self-fulfilling, even if Help to Buy supports only a few buyers. In that case, the Bank of England is likely to step in to calm the market."

Article Source: http://www.theguardian.com/money/2013/oct/15/house-prices-hit-record-high

Help To Buy Lending Scheme Launch Sparks Homes Frenzy

This article by Sarah O'Grady of the Express on October 9th, 2013 tells us the launching of the 2nd version of the Help to Buy scheme swept up Britain's housing market in frenzy.

Borrowers leapt on the new Government initiative which will allow them to buy homes with 95 per mortgages and slash average deposit amounts.

As details emerged of the deals available from lenders, David Cameron said the project would unlock the housing market and help young people without rich parents get their own home.

HSBC became the first major bank outside state-backed Royal Bank of Scotland and Lloyds to announce it was joining the £12billion scheme.

Britain’s biggest mortgage lender Halifax also ann­ounced details of the home loans it would be offering.

Homes valued at up to £600,000 will be eligible with some estimates suggesting 180,000 loans could be taken out – despite fears that the scheme could spark a housing price bubble.

Taxpayers will guarantee up to 15 per cent of a property’s value, in return for a fee charged to lenders, allowing homebuyers to purchase with deposits as low as five per cent.

As the scheme was laun­ched, Mr Cameron visited a three-bedroom show home in Weston Favell, Northampton and met first-time buyers Kayleigh Groom, 28, and her partner Chris Day, 29, from Kettering.

The couple, who have been renting for five years, told him that Help To Buy would enable them to get on the property ladder.

Mr Cameron said: “What we’re doing is making sure that the typical family can buy the typical home.

“The couple I’ve just been with. They’ve both got good jobs. They’ve both got good prospects. They can afford mortgage payments but because they haven’t got a rich mum and dad they can’t get a mortgage. That isn’t fair. That isn’t right.

“So the Help To Buy scheme will help them to get a mortgage and make them homeowners.”

RBS and its NatWest subsidiary said they expect to sign up 25,500 first and next-time buyers over the three-year scheme. The two lenders are extending opening hours at 740 branches to cope with the demand.

Paul Smith, of haart estate agent, predicted Help To Buy will boost property deals by 10-15 per cent in the next 12 months and cut first-time buyers’ average deposit from £33,948 to £7,218.

He said: “We have seen a frenzy of activity with our branches overwhelmed by enquiries in the wake of the launch of Help To Buy.

“We have had the best first week of October for nine years. Last year we had 3,800 buyers registering in that first week, this year it was 7,281 – that’s a staggering 92 per cent increase.”

Article Source: http://www.express.co.uk/news/property/435438/Help-To-Buy-lending-scheme-launch-sparks-homes-frenzy

 

Concerns that UK is Fueling Property Market

This interesting article by The Irish Times on October 8th, 2013 reveals how the UK's government help-to-buy scheme allows people to buy a home with a deposit of as little as 5%.

UK Chancellor of the Exchequer George Osborne began the second phase of his mortgage-boosting plan as concerns persist that it will fuel a property bubble.

Royal Bank of Scotland’s Natwest unit and Lloyds Banking Group ’s Halifax and Bank of Scotland will start offering Help-to-Buy mortgages this week, with Virgin Money Holdings and Aldermore Bank planning to start in 2014, the Treasury in London said in a statement today. 

The program allows people to buy a home costing as much as £600,000 pounds (€709,000) with a deposit of as little as 5 per cent. The first phase came into effect in April, and Prime Minister David Cameron last week brought forward the start of the second from January, dismissing criticism that the plan may help fuel a bubble. 

Halifax said this month that house prices rose for an eighth month in September and lawmaker Andrew Tyrie, who heads the Parliament’s Treasury Committee, said today that intervention in the property market risks causing distortions. 

“The government has yet to allay the committee’s concerns,” Mr Tyrie, a member of Cameron’s Conservative Party, said. “Given the checkered history of interventions in residential property, great care will need to be taken in both the construction and running of this scheme.” 

Under the mortgage plan, the government guarantees as much as 15 per cent of the purchase price in return for a fee from the lender. Fees will be charged as a percentage of the original loan amount and be reset every year. For 2014, they will range from 28 basis points, or 0.28 percentage points, for mortgages between 80 per cent and 85 per cent of the value of the property, to 90 basis points for loans between 90 per cent and 95 per cent, Osborne said in a written statement to lawmakers today. 

Cameron said today the government “had to act” to help prospective homebuyers.

“Too many hardworking people are finding it impossible to buy their own home,” he said. “Buying your first home is about far more than four walls to sleep at night. It’s somewhere to put down roots and raise a family. It’s an investment for the future.” 

Halifax customers will be able to apply for mortgages under the program starting October 11th. The bank is offering a two-year fixed-rate of 5.19 per cent. That’s more than the 1.94 per cent fixed rate it offers first-time buyers who can put down a 40 per cent deposit, according to the bank’s website. Similarly, RBS is offering two- and five-year fixed rates at 4.99 per cent and 5.49 per cent. That compares with a two-year fixed-rate of 1.95 per cent for first-time buyers who are able to put down a 40 per cent deposit, according to its website. HSBC said in an e-mailed statement today that it will also participate in Help to Buy later this year. 

Article Source:  http://www.irishtimes.com/business/sectors/financial-services/concerns-that-uk-is-fueling-property-market-1.1553937

Help to Buy Scheme: How it Works?

This engaging article by The Week on October 7th, 2013 reveals the purpose and objective of the government in launching the help to buy scheme.

The Help to Buy scheme - a government initiative designed to help struggling home-buyers get onto or move up the property ladder - has two phases. The first, a £3.5bn scheme aimed at buyers of newly-built properties worth up to £600,000, was introduced in April and has already been taken up by about 7,000 people. The second phase, which applies to new or second-hand properties up to the same value, starts accepting applications today. David Cameron believes the initiative is essential because "the mortgage market today isn't working". Critics argue that it may trigger a housing bubble, particularly in the over-heated London market. But what is the Help to Buy scheme and who will be eligible?

How does phase one of Help to Buy work? 

The first phase of Help to Buy applies only to new homes and first-time buyers. Borrowers need to raise a 5 per cent deposit on the property and can then borrow a further 20 per cent from the government, initially interest free, up to a maximum of £120,000. After five years, what remains of the loan will attract interest at 1.75 per cent per year. The rate will increasing each year by 1 per cent above inflation. The £3.5bn scheme, which will be administered by home builders will support about 74,000 home purchases.

What happens if you can't pay your mortgage?

If you take out an equity loan and find you can't pay your mortgage, you'll probably have to sell the property or the bank will repossess it and sell it for you. Citywire points out that the 20 per cent equity loan will still need to be paid back to the government.

And phase two?

Phase two of Help to Buy applies to home movers as well as first-time buyers and second-hand houses as well as new ones. In this phase, the government does not loan money to the homebuyer but provides a guarantee to the lender for up to 15 per cent of the loan. That will allow borrowers with only a 5 per cent deposits a much wider choice of mortgage deals. As in phase one, there is a limit of £600,000 on the value of the property.

Why do lenders need loan guarantees?

The government guarantee reduces the bank's losses if a borrower defaults on his or her payments. "That allows them to offer cheaper mortgages to would-be home-buyers with small deposits, who are currently locked out of the market," explains the Daily Telegraph.

Why has the second phase been brought forward?

The second phase was due to start in January. Asked why the government had brought the start date forward three months, David Cameron said: "I am impatient to help young people get on the housing ladder.

Does that mean I can buy a new home this week?

No. Lenders won't be able to get loan guarantees from the government until 1 January, 2014. That means you won't be able to use the second phase of Help to Buy for home purchases that complete before 2014.

Which banks will offer the 95 per cent mortgages?

The scheme will initially be available from the Nat West, RBS and Halifax, but the government says other banks and building societies are expected to sign up over time.

Are there an unlimited number of 95 per cent loans on offer?

No. The government is making £12bn available in loan guarantees, enough to fund mortgages worth a total of £130bn. The scheme will remain open for three years. Mortgage brokers fear "a stampede of new applications" for loans when the scheme opens, reports The Guardian.

What interest rates will borrowers have to pay?

Citywire says there "could be a catch" in the mortgage rates lenders offer borrowers in the scheme. In the mortgage market those with a large deposit are often able to negotiate a lower interest rate. "It could be that a 5 per cent deposit mortgage incurs a high interest rate particularly if banks are told to hold more capital to cover the risky loan," says Citywire. Banks will also have to pay a fee of 0.9 per cent of the loan value to take part in the scheme. They are likely to recoup that from customers in the form of higher interest rates.

Who is excluded from Help to Buy?

The new loans aren't means tested, but they won't be available to people wanting to buy second homes or buy-to-let properties. Prospective borrowers will be required to sign documents confirming they are first home buyers or, if they already own a home, that they are in the process of selling it.

What do supporters of the scheme say?

The incoming chief executive of the state-backed RBS, Ross McEwan, told The Guardian that his bank was backing the scheme because: "We are committed to helping as many people as possible across Britain to get on with their lives, to buy their first home, to move to a bigger house as their family grows."

What do critics say? 

Business Secretary Vince Cable says the scheme may trigger an unsustainable boom in house prices, particularly in the south-east of England. "I am worried of the danger of getting into another housing bubble," Cable told the BBC. · 

Article Source: http://www.theweek.co.uk/uk-news/55455/help-buy-scheme-how-it-works

Average Property Price Sits at All-Time High of £257,000

This article by Lauren Everitt of EADT 24 on September 18th, 2013 shows that the property market is on its way to recovery with house prices on rise according to experts.

Property in the East of England now costs an average of £257,000 compared to £210,000 in July 2009 when the region felt the knock-on effects of the economic downturn.

Statistics from the Office for National Statistics (ONS) said a 1.4% rise in property prices from July 2012 to this July have helped increase the value of homes, surpassing the previous peak of £235,000 before the recession.

James Girling, director of Colin Girling & Company Ltd and PR representative for the Suffolk branch of the National Association of Estate Agents, said: “Since May the market has improved although it is still a buyer market.

“The Government talk about this ‘bubble’ but there isn’t one. Here in the east of the region we haven’t noticed this boom or bust scenario coming our way.

“It’s been a gradual increase of business and the first time buyers are coming through.
“The market is improving and we are optimistic but everything is two or three steps down from where it needs to be.

“The volume of activity is not where it was in 2006 and 2007 before it all went wrong.”
Michael Bedford, a partner at Bedfords in Aldeburgh, said the market has seen more activity.

“There has been more constant activity as well whereas there were peaks and troughs during the past few years,” he added.

“To many people’s surprise we had a record year in 2010 and this year has been as good but it’s too early to tell if it’s going to be better.”

However concerns have been raised that Government initiatives to kick-start the housing market such as Funding for Lending and Help to Buy are in danger of creating a property bubble, with borrowers over-stretching themselves as access to low-deposit deals returns.

Richard Sexton, director of e.surv chartered surveyors, warned that rising house prices threaten to price some people trying to get on the property ladder out of the market at a time when households are still under pressure from high inflation and stagnant wages.

He said: “If the Government wants to make housing more affordable - and avoid inflating another property bubble - then it needs to encourage more house building.”

Article Source: http://www.eadt.co.uk/news/east_of_england_average_property_price_sits_at_all_time_high_of_257_000_1_2643933

A Quarter of All Homes Sold to First Time Buyers

According to this latest article by Alex Johnson of The Independent on September 10th, 2013 NAEA figures show around 26% home sales were sold to first-time buyers.

Around 26% of home sales in August were by first time buyers, according to figures from the National Association of Estate Agents (NAEA), the highest proportion since July 2010 and up from 22% in July.

NAEA members also reported an increase of 29% in the average number of house hunters per branch, up from 250 in July to 322 in August, as well as a slight increase in the average sales agreed per branch in August (nine) compared with July (eight). However, supply levels dropped slightly over the month – the number of available properties per branch decreased from 53 in July to 52 in August.

Around 40% of home buyers last month were aged between 41 and 55 years old, followed by 31 to 40 year olds at 36 per cent. Nearly eight out of ten properties were sold to couples.

Five thousand Lanarkshire homes set to receive green energy

Muirhall Energy has secured a £9million finance package from Santander to expand the Muirhall Windfarm in South Lanarkshire. It is adding two new turbines to the site, the tallest in the UK, to increase production to 60,800 MWh per year, enough to power over 14,300 homes each year. This will prevent 26,144 tonnes of carbon dioxide emissions each year.

Chris Walker, Managing Director of Muirhall Energy, said: “As demand for power increases and fossil fuel reserves deplete it is important we continue make the most of alternative sources of energy and wind power continues to be one of the most cost effective and green solutions.”

Lack of rental homes for families on the market

Figures from Countrywide show that two and three bedroom rental properties saw an increase in average monthly rents in August, up 0.6% and 0.9% respectively. One and four-plus bedroom properties saw a drop of 0.1% and 1.6% respectively. Nick Dunning, Group Commercial Director at Countrywide, said: “August is traditionally a busy period for the rental market with tenants, particularly families, wanting to move into their new rented accommodation before the start of the school term in September. However, demand is not being met by supply and currently there is a particular lack of family-sized properties available to rent, especially in the South of England. Improved conditions in the sales market are attracting reluctant landlords to sell these types of properties specifically in the catchment areas for good schools.”

Property prices in Surrey

According to Zoopla the property prices in Surrey are up 7.35% from five years ago and 4.12% from a year ago. James Wyatt, Partner of Barton Wyatt and Chairman of NAEA Surrey, said: “These figures point to the change in attitude of the money lenders in the last there months. Yet again financial institutions are driving the market and the recent decisions which enables UK buyers to borrow money more easily again has positively turned the market. This has aided sales in the small to medium sized end of the market as most of these properties are purchased with mortgages and in turn we have seen a 33% increase in domestic buyers over the past year in north Surrey.”

Article Source:  http://blogs.independent.co.uk/2013/09/10/a-quarter-of-all-homes-sold-to-first-time-buyers/

George Osborne's Homes Scheme Could Sideline First-Time Buyers

Help to buy homes scheme could cause property prices to new highs says lenders as shown on this article by Hilary Osborne and Phillip Inman of TheGuardian on August 28, 2013.

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