The British government is poised to announce the extension of its “help to buy” scheme for potential home owners.
As of today, any buyer(s) of a property up to a value of 600,000 pounds ($960,000) who can put up a five percent deposit, will see the government guarantee to the lender a further 15 percent of the value so a bank or building society will only be lending on 80 percent of the property’s value. Until now, demands for cripplingly large deposits have shut many prospective buyers out of the market.
The big question is whether now – with property prices rising by around 3 percent nationally and by a heady 10 percent annually in London – is a sensible time to be doing this given Britain’s long history of housing bubbles.
With buying/selling and lending activity below long-term norms, the government and Bank of England argue there is no threat yet (although finance minister George Osborne has just given the BoE more powers to intervene if it changes its mind).
The real solution would be to build many more homes. If housebuilders leap into the fray on the back of this scheme then all may be well and good. But if they don’t…