According to the latest outlook report from the Intermediary Mortgage Lenders Association (IMLA) almost two thirds of intermediary lenders and brokers, 60% and 59% respectively, single out a house price bubble as the most likely factor that may undermine the government scheme.
The research shows lenders already anticipate a 2.7% increase in the average house price by the end of the year, pushing it to £166,418 according to the Land Registry measure. Lenders’ prediction is based on the market’s performance in the first half of 2013 and the initial impact of the Help to Buy equity loan scheme.
If this same growth rate continues for the duration of Help to Buy, the average house price will reach £180,265 by the end of 2016, an overall rise of 11% in four years. This would bring house prices close to their last peak of £181,975, which was recorded in November 2007. There are concerns that the rate of increase could be even greater with the upcoming Help to Buy mortgage guarantee offer still to launch in January 2014.
Brokers also register significant concerns about a potential lack of lender support for Help to Buy, with almost half, 48%, worried this will jeopardise the scheme.
Just 20% of intermediary lenders openly share this sentiment yet 47% see capital weighting requirements as a major barrier to success. The detail of capital relief is still to be confirmed by the Treasury and will greatly influence lenders’ ability to back the initiative.
The same proportion of the lending community is concerned that an over reliance on government funding will handicap Help to Buy, while 27% cite structural weaknesses in the mortgage market. This market imbalance is of as much concern as a change of government in the next general election with 27% saying so.
Despite these concerns both groups agree that first time buyers will see the greatest benefit from the upcoming Help to Buy mortgage guarantee with 100% of lenders and 89% of brokers taking this view.
Lenders are more optimistic than brokers about home movers benefitting at 80% compared with 56%. While the guarantees will also be available to existing home owners seeking to move to another lender, just 13% of lenders and 6% of brokers see the scheme as benefitting home owners remortgaging their properties.
‘Pleasing though it is to see increasing levels of activity in the market and a swell of consumer interest, these findings spell out the importance of keeping control over any future growth,’ said Peter Williams, executive director of the IMLA.
‘There is a clear consensus that first time buyers stand to benefit most from the second part of Help to Buy. But if house prices continue to rise for the duration of the scheme, then in essence we will be giving with one hand and taking away with the other. Moreover the exit from the scheme will need to be managed very carefully so it without causing serious harm to the market,’ he explained.
‘If people are struggling to raise deposits in the current climate then a further 11% increase in house prices will lift the property ladder even further out of reach for some. House builders are attempting to bridge the ever growing chasm between supply and demand which is going to be essential to ensure we help more people to access the property ladder without creating new hurdles in the form of inflated house prices,’ he pointed out.
‘In the meantime, the pressure is on to ensure Help to Buy is more inclusive than divisive. Agreement on capital weightings and on the fee lenders will be charged to participate are crucial to ensuring the scheme is made affordable for lenders as well as consumers if we want to see a similar impact as the current equity loan scheme,’ he added.
Meanwhile, most of the 10,148 reservations for new build homes have been in the regions, official data on Help to Buy shows.
Interest in the Midlands has been most keen, with nearly four times as many reservations of new build homes than in London. Reservations in the East and South East have also been high, as have those in the North West of England.
The regional take up of the equity loan part of the Help to Buy scheme has lifted confidence in these areas, with many mothballed housing schemes now springing back to life as a result of the increased demand from buyers, according to property firm Knight Frank.
House builders have been quick to report that they envisage increasing their output in the coming year and there was an encouraging rise in the number of new private housing starts between April and June, rising 7% on the quarter, indicating Help to Buy was having an effect.
The firm said it is worth noting that it is not working in isolation. ‘The government’s funding for lending scheme has helped drive down the cost of mortgages, and this, coupled with a slight loosening in lending criteria and the ultra low bank base rate has led to a sharp rise in the number of first time buyers, an encouraging sign for a return to a more fully functioning housing market,’ it says.
