House prices surged in February, reaching their highest annual growth rate in over six years, a new report from Halifax reveals. Experts agree the Help to Buy Scheme is largely behind the recent price hike, and it may be threatened as a result.
Home values throughout the UK soared by 7.9 per cent over the last year, lifting the average home price to £179,872 in February and marking the highest annual jump since October 2007.
House prices in February were 2.4 per cent higher than they were one month earlier in January, providing evidence that the newly enacted Help to Buy Scheme may be to blame.
The controversial scheme allows home buyers to purchase a new or existing home with a deposit of only 5 per cent. Lenders across the UK have adopted the scheme and more continue to jump on board.
The scheme allows lenders to purchase mortgage guarantees, essentially promoting high LTV products.
Although the Help to Buy Scheme has helped many Britons purchase their first home, high-profile critics of the scheme, including Business Secretary Vince Cable, warn that it has the potential to sharply raise house prices, spark a housing bubble, and make homes unaffordable for all but the wealthiest of individuals, which is the polar opposite of the scheme’s original intentions.
Ratings Agency Fitch predicted the scheme would rapidly accelerate inflation in the housing sector, widening the margins of builders and lenders alike.
“It seems increasingly likely that they will do little to sustainably improve the plight of first-time buyers locked out of the market,” said consultant Capital Economics.
Ian McGrail, director of First Mortgage, is in agreement. “Government plans to extend the initiative up to 2017 are cause for a considerable degree of concern as we do not want to see the market run away with itself and see a return to pre-crunch activity where buyers had to offer significantly over the valuation to secure a home,” he stated.
David Marhsall, an analyst for the Edinburgh Solicitors Property Centre cautioned that initiatives like the Help to Buy Scheme must be constantly reviewed, so they can be scaled down or discontinued if house prices begin rising.
Meanwhile, Labour’s Shadow Housing Minister Emma Reynolds MP warned that the housing supply must continue to grow to match the rising demand if house prices are to remain in check.
She stated, “Instead under this government housebuilding is at its lowest level since the 1920s.”