The UK government has today received criticism with regards to its Help to Buy mortgage guarantee scheme which is set to be expanded in January 2014. The second stage of a £12 billion scheme will see the government guarantee a proportion of the home loan thereby allowing buyers to arrange mortgages with just a 5% deposit. The scheme as it stands at the moment is only relevant to new property purchases although it will be rolled out next year to include all property purchases.
There are certain caveats within the scheme to ensure the funds are used in the spirit they are offered and it only relates to property worth less than £600,000. There were issues with regards to second home loans but these have been addressed by the government fairly quickly.
Could this lead to a housing market price bubble?
While there is no doubt that UK banks are still concerned about the short to medium term future of the UK economy, and the impact this will have on the property market, we will see a significant improvement in funding in light of the second stage of the Help to Buy scheme. Whether this will just take us back to “normal” mortgage levels is debatable but then again if we look at the economy and the ability of individuals to afford properties in the “normal market”, are we creating something of a false market?
There is no doubt that the more money which pours into the UK property sector the more upward pressure this will put on prices in the short to medium term. We also have to think about when the scheme ends and the impact this will have on the market.
Quote from PropertyForum.com : “One hot topic at the moment is the lack of affordable housing across the UK compared to the number of unused bedrooms in some of the larger houses across the country.”
Is this a political or economic move?
There is some concern that Chancellor George Osborne is attempting to manipulate the property market in the short to medium term and bring back the feelgood factor ahead of the next election. There may be some truth in these claims but the fact is that the property sector is an integral part of the UK economy and if this Help to Buy scheme does manage to kickstart the property sector in the short term then there are many benefits to be had.
One thing that the current government and previous governments have not managed to address is that of housing supply which has for many years been inferior to demand. There have been accusations that governments of the day have manipulated housing supply to keep property prices stable but whatever the reason for inferior supply in years gone by, we need to see change as soon as possible.
The reality is that whatever the government does to try and assist the property market it will have a short impact on prices and push some properties outside of the range of many future buyers. The authorities will need to maintain a close watch on house prices to ensure they are not inflated artificially to a level which is unsupportable in the medium to longer term. Hopefully once the scheme is over and the £12 billion has been invested then the market will have recovered sufficiently under its own steam to revert back to “normal”.