Since the scheme started average house prices have risen sharply in the UK. The latest figures from the Land Registry show a year-on-year price rise of 5.6% and many lenders reporting even higher annual average increases. It seems likely Help to Buy played a large role in this increase due to more people being able to buy thus increasing demand but without an increase in homes it’s allowed higher prices to be charged and now made it such that even with Help to Buy many are getting priced out of the market.
“The cost of a home has now risen across the country for eleven consecutive months,” a report from the Royal Institution of Chartered Surveyors (RICS) said, and things aren’t likely to improve for those struggling to get onto the property ladder with house prices in London and the south east expected to rise by at least eight per cent a year, for the next five years.
“The ongoing issue that we are facing is the lack of homes coming onto the market,” according to RICS’ chief economist Simon Rubinsohn. “It is true that more are being built, but supply is simply not enough to satisfy demand. As a result, prices are likely to continue to move higher making it ever harder for people to take an initial step onto the property ladder.”
Help to Buy is a two-pronged attempt to encourage activity in the UK housing market by reducing the amount a buyer needs for a deposit, through government loans or deposit guarantees, but should the UK government consider more restrictions on the Help to Buy scheme as house prices continue to rise?
Some action has already been taken with the withdrawal of Funding for Lending which was designed to encourage banks to increase their lending by rewarding them with more funding and at a lower rate if they lent more.
This change was welcomed by the Organisation for Economic Co-operation and Development (OECD) however they think more needs to be done to stop the large increase in demand and therefore prices.
Tighter access to the Help to Buy programme, or demands for higher deposits from mortgage borrowers should be considered “to ensure a balanced recovery in the housing market”. Tighter restrictions may still seem like bad news for buyers but in order to slow the increase in prices, demand also has to be slowed (unless lots of new homes are suddenly built).
The good news is, even without additional restrictions this already seems to be happening with RICS having found the number of new buyer enquiries having risen at the slowest rate in February this year since March last year.
This suggests that there is a reduction in the number of people looking to buy, which should slow the increase, but whilst supply remains extremely tight (the number of new properties coming on the market has fallen at the sharpest rate since 2012) prices will remain elevated until the government does enough to encourage more building.