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Warnings that UK’s new Help to Buy scheme could create a property bubble

While there has been a widespread welcome to the new scheme announced yesterday by Chancellor George Osborne in his 2013 Budget, there are risks involved, says the Royal Institution of Chartered Surveyors (RICS).

‘Helping those who can’t afford large deposits by using the government’s balance sheet to guarantee mortgages and using capital savings to offer shared equity loans on new build for all buyers will help prevent prolonged market stagnation although it presents a significant risk to government,’ the respected organisation said in a statement.

‘The devil will be in the detail about how the government will treat buy to let and those in negative equity. RICS will monitor the impact on the market and prices. However, government need to be careful this doesn’t create another housing bubble, pushing prices up at the expense of buyers,’ it added.

Others voiced concern that the £3.5 billion Help to Buy scheme which will allow buyers to purchase with a 95% mortgage, putting down a deposit of just 5%, could lead to people not being able to afford their mortgages.

But Osborne denied that the new scheme would have an adverse effect. ‘We're not talking about returning to the situation of four or five years ago where people had 125% mortgages and self certified mortgages where no one checked what peoples' incomes were,’ he told the BBC.

Osborne said the plans were prudent and would not put Britain back at risk of a property boom and bust, in large part because the UK housing market was currently flat.

He said the government wanted to help people who would normally be able to buy their own homes but could not afford high deposits now demanded by borrowers.

RICS also welcomed the fact that Osborne is actively considering extending funding for the Funding for Lending Scheme. ‘RICS would urge him to act now. We are confident that an extension of the FLS would assist more would be home owners and small businesses. While the FLS has been a key part of the beginning of improving conditions in the housing market, it’s hardly surprising that banks remain more willing to lend on residential mortgages rather than small businesses. Government needs to take a long hard look at the FLS as small businesses are the engine of the UK’s economic recovery,’ it explained.

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