Could Help to Buy part two help to avert a housing bubble?
Brian Murphy is head of lending at Mortgage Advice Bureau
Among all the awards given out by the mortgage industry every year, if there was a prize for dominating headlines and provoking disagreements then the ‘housing bubble’ – whether it is real, imaginary or lying in wait around a corner – would be odds on claim the title.
It is absolutely right that industry, regulators and the Bank of England should keep a watchful eye on house prices as the market experiences its most encouraging growth since 2007. Knowing they stand ready to intervene if momentum threatens to spin out of control means we can focus on the task in hand: that is, building on recent improvements to support wider access to the housing ladder for those who can reasonably afford to manage their mortgage payments.
Plenty of attention has focused on the upcoming Help to Buy mortgage guarantee, which has provoked the greatest level of concern about resulting price growth. Yet a report last week from Capital Economics about the premium on new build homes raised an interesting possibility that this second helping of government support may help to provide some balance moving forwards.
With 10,000 reservations in its first four months, the equity loan scheme has been a resounding success by igniting interest and activity in the new build sector. It has drawn consumers in greater numbers to investigate this area, which is excellent news in terms of encouraging confidence in construction.
Yet if Help to Buy was to remain focused on new build properties alone, it may push prices up artificially compared with ‘second-hand’ homes and inadvertently restrict the recovery by pricing buyers out of the new build market. As well as improving access to low deposit mortgages, the guarantee should also help to ensure stability in the pricing of new build homes by bringing existing properties into the Help to Buy fold.
The surge of interest in new builds is the scheme’s biggest achievement to date and it has been encouraging to see new lenders offering equity loan products. The market would benefit greatly if the same level of commitment was extended to new build properties across the board – not just those supported by additional government funding.
Offering mortgages to aspiring owners with the funds to buy new homes without state support would build on recent growth and encourage natural, organic market growth. The first four months of Help to Buy have shown consumers are not shy when it comes to considering new build properties; now is the time for lenders to follow their lead and move things up a level.