Fears raised over house price bubble as sweeteners attract surge in buyers Kathryn Hopkins Last updated June 07 2013 1:01AM Average property values rose by 2.6 per cent to £166,898 in the year to May Chris Ison/PA Fresh evidence emerged yesterday that the housing market recovery was gaining traction after figures showed that house prices have jumped to their highest level in almost three years. Average property values rose by 2.6 per cent to £166,898 in the year to May, according to Halifax’s latest index. This was the highest level since August 2010 and comes after the number of first-time buyers rose by 15 per cent. LSL Property Services said that about 22,000 people bought their first home in April, almost 3,000 more than the previous month. The Bank of England’s Funding for Lending Scheme, which gives lenders access to cheap finance, is being cited as the main driver behind the pick-up in activity. This has in turn led to mortgage rates dropping across the board, with the Chelsea Building Society cutting the rate on its two-year fixed-rate mortgage to 1.69 per cent. The Government’s Help to Buy Scheme is expected further to boost activity in the market, which was hit hard when the global downturn struck five years ago. The first part of the initiative, which is already under way, involves the Government helping buyers of new-build homes to gain a mortgage with a deposit as low as 5 per cent by granting an equity loan of up to 20 per cent of the property’s value. The second part, which comes into force in January, is aimed at stimulating the entire housing market. The Government will make guarantees to lenders that will support low-deposit mortgages worth £130 billion. The Home Builders Federation said yesterday that the equity loan part of the scheme had already made a “flying start” and that about 4,000 people have reserved a new home. “The Equity Loan scheme helps consumers overcome that deposit barrier and as a result the scheme will undoubtedly lead to an increase in housebuilding,” Stewart Baseley, executive chairman at the federation, said. “Already we are seeing companies revise their projected build levels as a direct result of the scheme.” However, several top economists have warned that Help to Buy could create another housing bubble. Fathom Consulting said that the average price of a home, according to a measure by the Office of National Statistics, could rise by 30 per cent by the end of 2015 to £300,000 as a result of the initiative, which has also been called into question by Sir Mervyn King, the Governor of the Bank of England. “This scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market, with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market,” Mr King said. Albert Edwards, global strategist at Société Générale, became to the latest economist to criticise the scheme this week, branding it “moronic”. “[It is] head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business,” he said. Despite recent signs of improvement in the housing market, Martin Ellis, Halifax’s housing economist, warned that the subdued economic background and the accompanying weak growth in incomes continued to be a significant constraint on demand.
Posted on: Fri, 07 Jun 2013 11:51:53 +0000