In an attempt to mitigate the fearful sentiments harboured toward the Help To Buy scheme, the Chancellor of the Exchequer has sought to address concerns that it may b do more harm than goodb .
Lenders and experts alike have been looking to the government to address concerns that the scheme would boost demand at an unsustainable level relative to changes in housing supply, provoking another housing bubble.
Mr Osborne suggests that the criteria in place for HT would help prevent any such bubble from taking form, instead highlighting that HT would provide lower income households the chance to get a foot hold on the property ladder, while also gaining from ownership of an appreciating asset.
Among the safeguards, which include the government underwriting B#130 billion worth of mortgages, stringent affordability tests on the part of lender (under mechanisms used for their standard mortgage products) would exclude sub-prime borrowers.
The government has also been quick to point out that the scheme is under review for the next three years, after which assessments on its success will determine if it is here for the long haul.
The dangers of stoking demand to levels beyond growth in supply, especially in a market for loanable funds predominantly supported by sub-prime borrowers, is effectively the recipe for creating a bubble.
Economists with a more optimistic appraisal of the plan suggest that opening up the scheme to existing households, planned to take place in early 2014, should help maintain a sustainable equilibrium in the market, in spite of the higher demand for housing caused by the scheme making loans accessible to more borrowers.
In its infancy, HT has seen gross lending increase by 26% to B#15 billion. As expected, this rise in demand has resulted in elevated housing prices, with rises in property values at 1.9% and 1.1% respectively over the past 12 months according to estimates from Halifax and Nationwide.
House price forecasts by the estate agency Savills have been revised to reflect this surge in demand, currently anticipated to rise by 18.1% in the next 4 years, up from earlier estimates of 11.5%.
If this is to be believed, then the average home price in the UK, currently standing at B#239,000 according to the ONS, will surpass its previous high of 2007 by the year 2015, adding over B#40,000 to the price of a home.
While the reasons for questioning the schemeb s long term viability have been extensively documented, (see our previous blog post on the subject) critics fear that the government does not possess a clear b exit strategyb once the scheme has completed, as Paul Smee of the Council of Mortgage lenderb s cites b You donb t want there to be a peak of activity, followed by a desert.b
In addition, he warns against setting unrealistic expectations for the programme, in order to reduce the probability of reckless lending on the part of providers looking to meet targets. Data from the British Bankerb s Association shows that mortgage approvals increased in April to 59,813, an increase of nearly 1,000 from the preceding month.
The IMF has outlined a solution to help bolster supply, in addition to the plan to open the scheme up to existing properties, by suggesting that the government initiate b fiscal disincentivesb for those who hold undeveloped land.
In theory, this would provide enough projects to ensure that supply matches increased demand, and therefore creates price stability for prospective users of HT schemes.
Housing construction has been at its lowest in many years, and an estimated 400,000 homes have received permission to be constructed but have not yet been built. It highlights the issues facing the supply side, which could be exacerbated if HT loans rapidly increase demand.
For now though, the verdict on HT is shrouded in uncertainty, but what is more clear is the governmentb s inability to reduce the negative sentiment surrounding it. Whether it leads to stronger housing and construction sectors or strays toward the wilderness of a housing crisis remains to be seen.
Click on the image above to view preliminary data on HTB