Treasury Select Committee fears H2B house price rise
The scheme offers government backed guarantees for high to loan to value mortgages requiring borrowers to put in as little as a 5% deposit to secure a new or existing home.
But Committee chairman Andrew Tyrie said: “The government’s response to our report on the 2013 Budget has done little to allay our concerns that the primary effect of the guarantee scheme, at least in the short to medium-term, could be to raise house prices rather than stimulate new supply.”
The Committee believes the scheme may not have the intended effects over its proposed three year life span.
He added: “Given the chequered history of government interventions in residential property great care will need to be taken in both the construction and running of this scheme.”
Tyrie warned that any mistakes made in the running of the scheme could distort the housing market or carry threats to financial stability.
And clarification around the Financial Policy Committee’s powers to make recommendations to the Treasury is being called for as it has been uncovered that the FPC’s veto over the continuation of the scheme after three years carries no weight.
The Committee believes that the government of the day will be put under pressure to extend the scheme creating the risk that the mortgage guarantee scheme will become a permanent feature of the UK mortgage market.
Tyrie said: “Following Committee scrutiny it transpires that the so-called “double lock” whereby we initially understood that the FPC would have a veto over the continuation of the scheme after three years is not a lock at all.
“Our understanding is that the government of the day, if it chose to extend the scheme, could do so despite any objections raised by the FPC.
“The government should provide more precise information on the operation of the so-called “double lock” and, in particular, re-examine the case for giving the FPC an explicit veto over the continuation of the scheme.”
And Oliver Atkinson, director of the online estate agents Urban Sales and Lettings, said: “Just as the housing market starts cooking on gas, along comes the government with a jerrycan full of petrol.
“The proponents of Help to Buy have the noblest of motives – making the dream of home ownership more achievable for everyone.
“But they are guilty of both pyromania and amnesia – fanning the flames of a housing boom and forgetting how badly burnt the market got just a few years ago.
“It’s a case of right measure, wrong time. When the mortgage lenders went into lockdown after the financial crisis, Help to Buy would have helped thaw the permafrost that descended on the housing market.
“But for at least a year there has been a genuine price war going on between lenders. Interest rates have been falling and lending criteria have slowly relaxed.
“The result is that demand is already outstripping supply in all the hotspot regions. Nationwide we are registering prospective buyers at twice the rate of sellers.
“While the scheme should give a useful fillip to the modest growth being seen in Northern England, in the South East it is too much too late.
“Stoking demand but not supply can only lead to rising prices. So Help to Buy risks having the opposite effect from what it sets out to achieve. By inflating prices it could push homeownership further out of reach for even more people.”