The Property Witch

A rise in house prices assist Help to Buy beat forecast

About 4,000 people have reserved a new home under Help to Buy. But, given the rising prices, there is quite a scope for criticism.

The Help to Buy scheme to boost the housing market has beaten forecast, two months in a row, since it was introduced, said the recent industry figures.

The Home Builders Federation (HBF) said no less than 4,000 people had reserved a new home under this scheme, and interest had been “huge” with more than an flooding 500 buyers taking advantage of it each successive week.

The figures come up in accordance with a 0.4% rise in UK house prices in May, as reported by mortgage lender Halifax. He also said the annual rate of growth was at its peak in over two-and-a-half years.

Aimed at improving the construction industry, the first part of the Help to Buy scheme was launched on 1 April with a breakthrough offer for aspiring homeowners of an interest-free loan from the government, aiding them to buy newly built property.

Borrowers will need to raise a deposit of 5% of the face value of the home, which could cost up to £600,000, and can borrow a further 20% from the government, with the biggest sum of loan available at £120,000. The government-backed loan must be repaid when the property is sold.

Stewart Baseley, executive chairman of the HBF, said: “The equity loan part of Help to Buy has got off to a flying start. Four thousand reservations in just two months shows both the consumer demand for the scheme, and developers’ commitment to it.”

The latest set of data showing hikes in house prices is likely to fuel criticism of Help to Buy, which a numerous experts have warned, will increase the expenses to artificial levels.

Help to Buy was christened one of the “most stupid economic ideas” of the past 30 years by the leading City commentator Albert Edwards, who heads the global strategy team at Société Générale.

The inputs from Halifax, one of the lenders offering Help to Buy mortgages, suggests pacing up of the house prices inflation, with three-month figures showing a 1.5% rise, up from 1.3%.

The bank stated the average price of a UK home to be £166,898, showing an inflation by 3.7% on May 2012′s figure of £160,906. Its own annual growth figure (which is a comparison of quarterly averages) showed a 2.6% turnover – the biggest since September 2010.

Martin Ellis, Halifax’s housing economist, said activity in the housing market has gained speed, but stayed low by historical standards.

“Despite these recent signs of improvement in the housing market, the subdued economic background and the accompanying weak income growth continue to be a significant constraint on housing demand and activity,” he added.

Another set of figures from property group LSL showed a classic 15% increase in the number of first-time buyers settling on mortgages in April, as lenders found more comfort offering mortgages at high loan-to-values.

The firm bases its figures on inputs from mortgage lenders and its estate agency chains. They said there were 22,000 first-time buyer transactions during the month, up by almost 3,000 on March’s figure.

However, Director David Newnes, warned that the boost to house prices brought in by exalted activity could be a nuisance, as it made homes less affordable to new buyers.

Graphs from Halifax show on the price/earnings ratio of properties, that homes have consistently been growing relatively more expensive over the past year, with the average price now being 4.59 times earnings against 4.44 times in May 2012.

Newnes said: “Schemes like to Help to Buy are designed to launch a counter-offensive on deposit requirements. But the scheme may actually inflate property prices and turn out to be counter-productive.”

The second phase of Help to Buy scheme, when the government will assure mortgages, starts in January 2014.

Written by James Eardley, Managing Director of Which Property Agent, the website to compare estate agents.

Tags: ,

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Renting out your house & selling your house – Advice for landlords & sellers