Roof blows off housing market - but is it a good thing?

Help to Buy is blamed/lauded for an uptick in the housing market. But experts remain determinedly cautious.

by Emma Haslett
Last Updated: 10 Sep 2013
Encouraging news for the housing market from the Royal Institution of Chartered Surveyors, which said this morning that house prices in July reached their highest level since November 2006.

What’s notable about the survey is that it reckons prices are rising across the country, rather than just in the South East. According to the figures, prices are likely to rise by 2% over the next year, and then by 4% in each of the next five years – up significantly from the 0.6% rise said it expected during 2013 at the start of the year.

Naturally, Help to Buy – the government housing market stimulus which is as reviled by experts as it is beloved by consumers – has had an effect. Surveyors now reckon the average loan-to-value ratio ‘may have’ risen by 2% since July last year, to 83.6% - meaning buyers are getting mortgages with smaller deposits.

All of which sounds very good (unless you’re a first-time buyer). But it’s worth pointing out that RICS’ study is a survey of sentiment among 315 chartered surveyors. Commentators more cynical than us might say 315 surveyors - who are interested in selling houses - reckon they’ll be able to get better prices for houses over the next year. Go figure.

That said, another survey, published yesterday by the Council of Mortgage Lenders, supports their view. It shows the number of mortgages taken out in the second quarter of this year hit 68,200 – the largest quarterly total for five and a half years. The CML cites Funding for Lending – another government scheme which allows banks to borrow cheaply – alongside Help to Buy as one of the driving factors.

Over the past few days, a slew of other figures have shown a turn-up in the housing market. Inflation figures published by the Office for National Statistics show house prices are rising 3.1% a year (8.1% in London), while a report published by the Land Registry yesterday showed the average price for a flat in England and Wales has now topped £250,000. The LSL/Acadametrics Index showed average house prices have now topped their 2008 peak.

So why is Help to Buy still so loathed by analysts? It’s partly to do with the perception it’s pushing up house prices: those CML figures show first-time buyers’ average mortgage was £117,000 in June, up from £112,500 in May.

It’s a vicious circle: rising prices push more homes above the £125,000 mark at which buyers have to pay stamp duty – making them even less affordable to first-time buyers.

So experts are pressing the government to consider abandoning the second stage of Help to Buy, which will offer government guarantees on 95% mortgages for all homes (whether new build or not) worth up to £600,000.

‘Should the housing market gain substantial momentum over the coming months, the case for dropping Help to Buy… will strengthen, even if the government may find this politically difficult to do so,’ Howard Archer, chief executive of IHS Global Insight, says.

It’s not unheard of for this government to u-turn – but it’s equally likely that, with all the ego-stroking he’s had from chief executives of the UK’s big housebuilders over the scheme, George Osborne will stick to his guns.

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