Britain’s Help to Buy – what the forecasters say

August 28, 2013

Now Britain’s housing market is showing real signs of life, should the government abandon its “Help to Buy” scheme to boost access to the market for homebuyers?

Economists and property analysts polled by Reuters over the last week were split. Two weeks ago, a majority of economists put the chances of another UK housing bubble forming at 50 percent or greater, catalysed by the Help to Buy programme.

Here’s a few comments on either side of the debate.

Cancel Help to Buy:

“The housing market was slowly recovering already, it has been good for the sector, but in the long term it is throwing money at something that is not the solution. There is a danger we are creating the next bubble and not learning from what’s happened previously.” Mark Hughes, co-head of research, Panmure Gordon

“One of the problems with the Help to Buy scheme is that it operates on the demand side of the housing market without doing anything to boost supply. Now that the BoE has made a commitment to keeping rates low for a considerable period of time, and is already providing a considerable amount of liquidity to banks, I can foresee problems once the scheme is extended in 2014 to cover existing homes. Given the problems which arose as a result of a debt-fuelled boom up until 2007, and the desire expressed by politicians in recent years to rebalance the economy, I see little merit in inflating the housing market.” Peter Dixon, global equities economist, Commerzbank

“The government’s Help to Buy scheme has thrown the gradual adjustment that was taking place in the housing market into reverse. Help to Buy incentivises the banks to lend precisely to those individuals who, absent the scheme, would not be offered credit. It risks re-inflating the housing market bubble and households already appear to be buying into the prospect of rising house prices. The increase in house prices alongside a loose monetary policy will help boost growth. However, for this debt-financed consumer demand to prove sustainable it must be met with an increase in the ability of the UK economy to produce goods and services. We believe that the supply potential of the UK economy has been severely damaged by the banking crisis. As such, the pick-up in demand will not prove lasting and ultimately Help to Buy pushes the UK economy further away from much needed rebalancing.” Andrew Brigden and Phil Lachowycz, economists at Fathom Financial Consulting

“No need for it – the housing market is already moving in the right direction.” James Knightley, senior economist, ING

“It is socialist and short-termist borrowing from next generation for the current one, and to buy votes for 2015 election.” Jonathan Davis, Jonathan Davis Wealth Management


Continue Help to Buy:

“I think that abandoning the scheme now would be a dent to consumer sentiment. Lending criteria at lenders are tighter than they used to be. So despite an acceleration in house price inflation I’d be surprised if it were to get ‘out of control’.” Alan Clarke, UK and eurozone economist, Scotiabank

“The first stage of the HTB scheme is supporting new build, which is helpful to ensure that the recovery is maintained. The second stage of HTB (i.e. government insurance) is probably less necessary than seemed the case in March, given the subsequent better availability of high loan-to-value mortgages. Nonetheless the government will be able to set the insurance premium at a high level if it fears overcooking demand.” Philip Shaw, chief economist, Investec

“While house price growth has accelerated strongly in recent months, the recovery in the housing market could still be knocked off track. There are a number of lingering issues which could hinder the continued pickup in household demand for property. Inflationary pressures remain strong while wage growth is weak. This, combined with ongoing fiscal austerity, is squeezing household finances. At the same time, underemployment and linger job security worries are problems for many households. Amid such pressures, some households are pulling away from consumption and saving more. Ongoing household deleveraging is also evident despite low borrowing costs. Housing affordability issues may also constrain demand somewhat.” Melanie Bowler, UK economist, Moody’s Analytics

“To end it now would be a severe blow to confidence in the residential construction industry from which it might not recover for several years.  It would destroy trust in government.” Stephen Lewis, chief economist, Monument Securities

“Help to Buy Equity Loan scheme is already up and running, has strong support from households and provides a direct link with house-building volumes. Help to Buy guarantee scheme has potential to improve availability of higher LTV mortgages to creditworthy households unable to put down a significant deposit.” Bob Pannell, chief economist, Council of Mortgage Lenders


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