The second phase of the Help to Buy mortgage scheme, aimed at increasing home ownership for buyers with small deposits to buy properties up to £600,000, not just new-builds, launched three months earlier than originally planned.
While Government scheme is welcomed, despite many not working, the basic problems of housing could ultimately decide the scheme’s fate.
The announcement was timely given the political point scoring that occurs during the conference season, but there’s a stark difference between rhetoric and reality.
More banks have signed up to the scheme, and the announcement that challenger banks Aldermore Bank and OneSavings Bank will join the scheme next year is great to hear. I stress though that apart from the government-owned banks, these lenders will only join the scheme in 2014.
How will the banks cope with the influx of transactions and mortgage appointments? RBS said it had booked 5,000 mortgage appointments within just three hours of the scheme going live, which is a fifth of the number of H2B mortgages, RBS had initially planned to sell under the whole scheme.
The reality also is that the market was not ready or prepared for an earlier kick off. It’s like pushing the kick off time for a football match an hour earlier. The players (banks) have arrived at the stadium (H2B market) but they haven’t warmed up properly (as they’ve planned for a 2014 start) and there is a constant influx of supporters (FTBs) coming to see them play.
There is certainly a mini price bubble within the M25, but the Help to Buy scheme could stoke house prices further unless more homes can be built. Market prices are already high, and the Help to Buy scheme could fan the flames of a housing boom.
A big problem revolves around planning, in that restrictions need to be lifted to help boost the supply of new housing. If this doesn’t surface then this could create a property bubble. For our industry, it’s interesting to see a number of lenders positioning themselves with development finance products.
Vince Cable and Mervyn King were among those concerned that the Government could be exposed to billions of pounds of future housing debt whilst inflating the property market. Cable said last month that there already signs of "serious housing inflationary pressures" in parts of the country.
The UK is the most inflated country within Europe at present with prices booming, and the increase in mortgage transactions will lead to a further increase in house prices. According to the ONS, house prices in the UK have hit a record high.
The IMF has also warned that the scheme risks creating a house bubble unless measures are taken to ensure a sufficient supply of new properties.
Recent stats by Nationwide have shown that house prices rose across every region of the UK for the first time since the crash, which is slightly worrying to say the least.Another problem is conveyancing. The scheme will obviously help increase demand for their services, but much like the problem with surveyors there isn’t enough staff to cope with such a heavy inflow of applications.
Some surveyor firms are fast-tracking graduates to cope with the barrage of business coming through the doors, but the quality of their work, and with conveyancers, will be tested.
There are now 50 per cent more buyer registrations in London than there was a year ago, however the number of houses coming on to the market has risen by 17 per cent, clearly highlighting what strain there is on the limited housing supply.
Now, with the government’s fast-tracked introduction of the second phases of H2B to the pre-owned market, competition between buyers will become frustrating and many won’t get the homes they want, and will be stuck in the process.
Past government housing market stimulation initiatives have fallen short due to a lack of external support, but it does feel different this time. There won't be a housing bubble, but the bubble the Help tu Buy scheme could cause is overwhelming to think about.
For those buying, I wish you luck; now it’s time for me to go back to my extortionately priced rented property in Clapham. It’s no wonder higher prices have created 3.3 million ‘residential ghosts’ who illegally sub-let rooms in the PRS.
Leave a comment