A LANDMARK £12 billion Help to Buy Scheme has prompted concerns of a house price bubble by creating more purchasers for fewer properties in Scotland.
Britain’s state-backed lenders are bracing themselves for a flood of interest from the newly launched scheme which helps homebuyers obtain mortgages worth up to 95% of property values.
But it is feared the new phase of the controversial Help to Buy scheme – which will result in up to 15% of a property’s value being guaranteed by taxpayers in return for a fee from the lender- will put pressure on available housing and create a demand that will push prices higher.
Taxpayer-backed Royal Bank of Scotland and its subsidiary NatWest immediately set out mortgage deals under the scheme and announced 740 of its branches would extend opening hours for two weeks to cope with expected demand.
Halifax and Bank of Scotland, owned by the state-backed Lloyds Banking Group, will start offering loans under the scheme on Friday but the Lloyds brand itself is not taking part.
Grainia Long, chief executive of the Chartered Institute of Housing (CIH), said it has warned the Government it still has more to do to address concerns about a lack of home supply and the second phase of Help to Buy could result in higher prices.
“We remain concerned that Help to Buy could simply increase prices if it is not matched by an increase in house building,” she said. “We were pleased to see the Bank of England given a role in monitoring the impact of the policy on a yearly basis, but the housing market can move very quickly and we would like to see more clarity around the Government’s proposals for monitoring the scheme between formal reviews.”
Dr John Boyle, director of research and strategy at Scots estate agent firm Rettie and Co, said that, while it was thought by the Government that improving demand would prompt an increase in supply from housebuilders, there were concerns the response was unlikely to be quick.
He said: “Even in the boom times we were not building enough – 35,000 homes a year target set in 1997, when we were building at around two-thirds of this level, and we are now building at around one-third.
“What we really need is a Help to Build scheme, incentivising not just private sector builders, but housing associations and local authorities to build more, and to encourage more investment (from the likes of institutions) into the housing sector, for example,on build to rent models.”
Susan Torrance, policy manager at the Scottish Federation of Housing Associations, added: “While we welcome any measure that will assist those in housing need to obtain a new home and appreciates the issue of people being unable to save a 20% deposit to obtain a mortgage, caution must be exercised to ensure that a new build price bubble is not created through a shortage of new homes.
“We would encourage the housebuilding industry to focus on increasing supply rather than raising prices, and we await the report of the monitoring group on the effects of this measure which is controversial south of the Border because it includes existing properties and a higher threshold.”
John Kelly, managing partner of Corum Property estate agents, added: “Perhaps we should credit the Government for stimulating demand as that may well provide the country with the confidence to build far more or perhaps more importantly encourage lending to the sector.
“It’s only by increasing available property that we can avoid price ‘bubbles’, none of us really have a vested interest in that as we all want is relative stability and measured growth.”
Several other major mortgage providers are seeking further details about the costs and benefits of the scheme before deciding whether to take part in it.
A Treasury spokesman said the lenders involved so far represented more than 30% of the mortgage market and more lenders were expected to indicate participation in the coming months.
The scheme had initially not been expected to start until the new year but has been brought forward by three months.
It will offer £12bn in mortgage guarantees over three years and some estimates suggest 180,000 loans could be taken out under the initiative.
Source: Herald Scotland