Property experts fear Help to Buy 'bubble'

Osborne's £130bn scheme to boost lending slated as smart politics but 'epic economic fail'

Housing in south London (Getty Images)

George Osborne has been warned that his flagship Help to Buy scheme to revive the housing market could drive up house prices and create a dangerous property bubble.

Declan Curran, founder of property maintenance company HomeFix Direct, warned: "The scheme is likely to end up creating the next property bubble. With this handy wheeze Osborne's concept manages to achieve the dual effect of being both great politics and an epic economic fail."

The Treasury has unveiled plans to underwrite a further £130bn of mortgage lending from next January through Help to Buy. Under the scheme buyers need just a 5 per cent deposit, with 20 per cent coming from a government loan and 75 per cent from a bank or building society mortgage.

Andrew Montlake, of mortgage broker Coreco, said: "While it will undoubtedly lead to an increase in activity among buyers looking to secure a property there are many questions that need to be answered.

"As well as questions over the fees involved, whether lenders will have the systems ready in time for January and details on exactly who is eligible, the key issue is whether lenders will be given capital relief where a guarantee scheme is in place. If so, it should also be made available to private indemnity schemes that already exist in the market.

"This begs the question is a taxpayer backed scheme really necessary?" He warned that it will not be the panacea the Chancellor hopes for. "If left unchecked it will create a house price boom that could cause as many problems as it solves." Most experts agree the scheme will lead to higher house prices. Iain Coke, head of financial services at ICAEW, said the move could therefore make it more difficult for first-time buyers in the longer term. "The mechanism for the £130bn mortgage guarantee is critical, and must not cause banks to relax credit standards irresponsibly," he added.

Mark Henderson, chief executive of social housing provider Home Group, said: "A scheme based solely on demand, without any incentives to supply more homes, could only lead to a spiralling of house prices. The last thing we need in the long term is house price inflation, which may lead to unwelcome interest rate rises and a growing pressure on already-squeezed home-owners."

Mr Curran said that UK house prices have only actually fallen by 16 per cent in real terms since the 2007 peak, compared with a drop in the United States of around 40 per cent during the same timeframe. "It means the government is now effectively encouraging the public to take on as much debt as possible in order to buy property that's already overpriced, and due to become even more so," he warned.

But let's not forget that the scheme will help some, said Daniel Bailey of Middleton Finance. "Borrowers who cannot remortgage as they have high loan to value mortgages may be able to move to a better deal with the Help to Buy scheme or alternatively be able to move house."