Capital Economics has called for the Help to Buy scheme to be shelved in order to cool the housing market after new data showed house prices have soared over the past year.
According to Halifax last week, house prices rose 7.7 per cent year-on-year in the three months to November.
Prices have now risen for 10 consecutive months, although at £174,910 the average house price is still 12 per cent below its August 2007 peak.
Capital Economics property economist Matthew Pointon says the scheme should be abolished but says the Bank of England is more likely to recommend scaling it back at some point next year.
Presently, borrowers can purchase homes worth up to £600,000 through the scheme but Pointon says this could well be reduced.
He says: “Help to Buy shouldn’t have been introduced in the first place, the second part certainly. I would suggest [abolishing it] as soon as possible as the best course of action for that scheme.
“In terms of what I think will happen is the Government will probably scale it back first – reducing the £600,000 limit for example. But in terms of the best course of action I think is to get rid of it altogether.”
GPS Economics director Gary Styles believes London house prices could well have increased by up to 15 per cent, although Halifax will not publish these figures until the New Year.
The Bank of England has already attempted to cool down the housing market by scrapping the Funding for Lending scheme for mortgage lending.
Styles says the government should also be looking at watering down the Help to Buy scheme to check the “unbalanced” recovery.
He says: “I would be very much in favour of scaling back the scheme. If you follow what has happened at the various Bank of England gatherings, you get the distinct impression that there is a feeling that this is the time to pull back a little. We have had the first stage of that with the FLS.
“You do sense the recovery is unbalanced. The problem is how long do you want to put up with this unbalanced recovery with the household sector borrowing too much. I think we are at the stage now where we should be considering watering down the scheme.”