Help to Buy 'bubble' could push house prices up by 30pc

[AtW]

They'll soon be paying to load up on debt to keep the real estate bubble.

Here is how it will work:

1) get a mortgage on a new build only and you'll be paid 0.5% interest rate on amount of debt you get

2) bank who lend the money will get kickback from Bank of England using freshly printed money to make it worth their while

3) everybody else will be paying the price via increased inflation (everything apart from wages), this would lift Govt tax revenues.

Boomed!!!

[jamesbrown]

I thought from Jan 2014 the scheme gets extended to old builds as well

It does. There's perhaps an element of truth in these schemes pushing expectations and hence price rises while supply is limited, but the recent activity is more about cheap loans (Funding for Lending etc) and an expansion of those loans to higher LTV ratios more recently. Following many years of high deposit requirements and low/negative equity holding back first/second time buyers, it's hardly surprising that there's some lift in demand now, but the demand is still pretty weak by historical standards. And wage growth is minimal. I highly doubt these schemes will have a dramatic effect on prices, and most of those speculating along those lines have a vested interest in prices increasing or their audience has that interest (Daily Fail etc.). I'd expect a period of slow/moderate growth in real terms that will be tempered by wage growth, economic stagnation and by rising interest rates beyond early 2015. I'd be less concerned about the risk of price inflation than the sub-prime mortgage fiasco being repeated over here 5-10 years down the line (they can't even agree now who will take the decision to can the scheme in 3 years, i.e. there is a very real risk it will become a semi-permanent fixture).

[sirja]

They're selling all sorts around here, 2 to 5 bed, but my view is that it can't create a bubble, for it's only for new homes, and there isn't that many, and it will affect the underlying, older, housing stock. Once you have bought it, no one else can attract the 20% deposit loan to buy it off you.

Now if they offered 20% on all homes, then yes, we'd all be looking at £300k average prices, but they'll not do that, as their building chums wouldn't profit from it.

I thought from Jan 2014 the scheme gets extended to old builds as well

[dmo]

Anyone building any new properties at the moment?

Of course.. lots of propDevs are selling off-plan around London

[MarillionFan]

I was thinking about this more deeply. Surely new home buyers are going to pay a huge premium over the next 8 months or so, then when the scheme becomes eligible to old home owners, there'll be a bubble bang, leaving new home owners with houses worth < than what they paid for it. Victorian houses (for example) would still rise in price compared to now, but would be less than they would if say they were the only houses eligible for the scheme.

Basically, I think new houses for the next year will see their prices rise, then plummet (but remain higher than they would if the scheme wasn't in place). Whoever jumps on the bandwagon now might get lucky or be in for a nasty shock in a year holding an overpriced asset.

Thoughts?

Anyone building any new properties at the moment?

[dmo]

I was thinking about this more deeply. Surely new home buyers are going to pay a huge premium over the next 8 months or so, then when the scheme becomes eligible to old home owners, there'll be a bubble bang, leaving new home owners with houses worth < than what they paid for it. Victorian houses (for example) would still rise in price compared to now, but would be less than they would if say they were the only houses eligible for the scheme.

Basically, I think new houses for the next year will see their prices rise, then plummet (but remain higher than they would if the scheme wasn't in place). Whoever jumps on the bandwagon now might get lucky or be in for a nasty shock in a year holding an overpriced asset.

Thoughts?

[AtW]

Now if they offered 20% on all homes, then yes, we'd all be looking at £300k average prices, but they'll not do that, as their building chums wouldn't profit from it.

WOHS

[Old Hack]

And the new house you've bought is likely to be a pokey first-time buyer house, so who are you going to sell it to?

They're selling all sorts around here, 2 to 5 bed, but my view is that it can't create a bubble, for it's only for new homes, and there isn't that many, and it will affect the underlying, older, housing stock. Once you have bought it, no one else can attract the 20% deposit loan to buy it off you.

Now if they offered 20% on all homes, then yes, we'd all be looking at £300k average prices, but they'll not do that, as their building chums wouldn't profit from it.

[VectraMan]

This is the kicker most do not think about. You buy using this 20% loan, then your house no longer qualifies for it, so anyone who wants to get the benefit, then looks to a new house.

And the new house you've bought is likely to be a pokey first-time buyer house, so who are you going to sell it to?

[Old Hack]

Depends if those new houses were going to be built anyway. This scheme increases the demand, which increases the prices of those houses. If what you say is true, then it does mean anyone who takes up the scheme is going to be in instant negative equity, as their nearly new house won't qualify for the scheme and will be worth considerably less.

This is the kicker most do not think about. You buy using this 20% loan, then your house no longer qualifies for it, so anyone who wants to get the benefit, then looks to a new house. It's crackers really, but it does mean that older houses, will not sell. You also still have ot pay this money back eventually.

[VectraMan]

Can't see how, as it only applies to new houses. What you'll see is new houses being sold before older houses, leaving the stock affected. We're seeing it here already, with all 'non-new' properties simply sitting on the market for ages.

Depends if those new houses were going to be built anyway. This scheme increases the demand, which increases the prices of those houses. If what you say is true, then it does mean anyone who takes up the scheme is going to be in instant negative equity, as their nearly new house won't qualify for the scheme and will be worth considerably less.

[Old Hack]

Can't see how, as it only applies to new houses. What you'll see is new houses being sold before older houses, leaving the stock affected. We're seeing it here already, with all 'non-new' properties simply sitting on the market for ages.

[MarillionFan]

Yahoo!!!

Rock on Tommy.

[AtW]

****!!!

"Fathom Consulting, run by former Bank of England economists, said that the scheme, which will give buyers with just a 5pc deposit help onto the housing ladder, could see a return to the lax lending practices seen before the financial crisis.

“Help to Buy is a reckless scheme that uses public money to incentivise the banks to lend precisely to those individuals who, absent the scheme, would not and should not be offered credit," said Andrew Brigden, a senior economist at Fathom.

"Had we been asked to design a policy that would guarantee maximum damage to the UK’s long-term growth prospects and its fragile credit rating, this would be it.”

The consultancy said that the scheme could push up house prices by almost 30pc from the current average of £233,000, according to the Office for National Statistics."

Source: Help to Buy 'bubble' could push house prices up by 30pc - Telegraph