Will Help to Buy Scheme Rejuvenate the Housing Market?
One of the initiatives announced in the March Budget was the Help to Buy Scheme. This will be launched in January 2014 and is intended to provide a much needed boost for the housing market. Under the scheme, house buyers will only need to find a deposit of as little as 5% of the property value. The next 20% of the property value will be effectively underwritten by the government, leaving the lender on the hook for the remaining 75%. It is not clear if lenders will be charged a fee by the government for underwriting the loan.
There has been a good deal of criticism of the scheme, particularly by the shadow chancellor. The principle concerns are that it might trigger another unsustainable house price boom and that some people might use the scheme to fund the purchase of a second home. I’m not sure I agree with either of these criticisms. Firstly, the average house price is still some 35% below its 2008 peak in real terms and, if you take inflation into account, house prices are still falling. Compare this with the rental market where rents have been rising at about 7% per year and it suggests that house prices are being artificially depressed by the lack of mortgage availability. As for concerns about second home buyers, the scheme is meant to boost the housing market as a whole, rather than target a particular type of buyer.
The biggest problem in the housing market at the moment is a lack of supply; we simply are not building enough new houses. If builders felt there were enough potential buyers with the means to buy a house, they might feel inclined to build more of them. Similarly, if potential buyers feel they are buying an asset that is increasing in value, they are more likely to get on or climb the property ladder.
There are still some details to be clarified but, overall, I think the Help to Buy Scheme will be a good thing for buyers, builders and the economy as a whole.
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