David Cameron has said he would be prepared to amend the Government’s Help to Buy scheme if the Governor of the Bank of England, Mark Carney, was to recommend a change of approach.
I believe he should bite the bullet and get rid of it altogether.
As far as the West Midlands is concerned it has done its job and we now need the market to be left to settle into a normal pattern where, in the shires, we’re seeing a steadily improving picture.
Stop tinkering; in this region we are not seeing a housing bubble just supply and demand.
The latest official data from the Office for National Statistics showed UK house prices rose by eight per cent in the year to the end of March. The annual increase slowed compared with a 9.2 per cent year-on-year price rise to the end of February.
But all this is being skewed by London and its special international position – affected by vast sums of money being invested by the likes of Middle East sheiks and Russian oligarchs. The annual property price increase in London stood at 17 per cent. Excluding London and the South East, prices were up by 4.7 per cent.
With Help to Buy prospective purchasers are offered a loan of up to 20 per cent on the price of a home if they can provide a five per cent deposit. The scheme initially applied only to new homes but was later extended to all homes worth up to £600,000.
PM ON THE DEFENSIVE
The Prime Minister has strongly defended it, pointing out that the average price of a property bought under it was £160,000, and that 85 per cent of the purchases were outside London and the South East. “We put in a place a scheme that was simple, that could get going quickly, that could make a difference to young people and others wanting to get on the housing ladder who could afford mortgage payments,” he insisted.
And he went on, “It is absolutely right that we are alert to any dangers and problems. This government hasn’t just talked about that. We have actually given to the Bank of England (and the financial policy committee) the tools and the responsibility to call out any problems in our economy, any bubbles in our economy, and to act on them. Mark Carney has all those powers at his disposal. We have specifically asked him to examine Help to Buy and advise us if any changes are needed.”
Mr Carney has said he remains vigilant, noting that rising house prices posed the biggest risk to Britain’s economic recovery. Help to Buy was a “pretty targeted programme” that was relatively small, but he added: “It could grow a lot and it could change attitudes in other parts of the mortgage market.”
John Fender, professor of macroeconomics at the University of Birmingham, has stated that a year into the scheme he remains convinced it is not helping the housing market.
He said, “The basic problem is this pushes up house prices but doesn’t make any more houses available. If you make it easier for one person to buy a house, that means somebody else won’t be able to buy. You may see the success stories but you don’t see the stories where people would have been able to buy houses but the prices were pushed up and they were priced out of the market.”
This is the problem – Help to Buy distorts the housing market. In the West Midlands, where there is no house price crisis, it is a distraction and should be scrapped.
We at CPBigwood have not carried out a single deal under Help to Buy.
Indeed, regionally we are not talking big numbers.
Almost 1,500 loans were agreed through Help to Buy in its first year in the West Midlands. That works out to 5.7 people per 10,000, the same ratio as UK-wide data.
According to the Government, 87.5 per cent of those taking advantage were first-time buyers.
THE NEXT STEP
As to the wider housing market, the Bank of England is set to use powers other than interest rates to put a lid on prices.
Mr Carney is considering the introduction of tests to determine whether people applying for mortgages could afford their repayments if interest rates rise. He could also intervene to limit mortgages with high loan-to-value ratios.
New criteria being applied by banks to mortgage applications, probing much more deeply into affordability, is already slowing down the sales process.
Help to Buy was designed to kickstart the housing market, it has done so, and it has served its purpose.
Time to get back to normality.