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Halifax: Help to Buy 2 fears ‘exaggerated’ and still no housing bubble

Halifax says the likely impact of the mortgage guarantee Help to Buy has been “exaggerated” by a number of commentators and there is still no sign of a house price bubble.

It is predicting that the UK will see broadly similar house price growth next year of between 4 per cent and 8 per cent and the low base rate and Help to Buy supporting mortgage rates and housing demand.

Yesterday business secretary Vince Cable warned that interest rate hikes may be required to combat “a raging housing boom” in London and the South East.

Cable also said he believed the Government’s Help to Buy scheme may need to be reviewed following a warning from Standard & Poor’s which has raised “quite serous worries” about it.

Capital Economics has also called for the Help to Buy scheme to be shelved in order to cool the housing market.

But Halifax housing economist Martyn Ellis says: ”While there are many uncertainties around the impact of the Help to Buy mortgage guarantee, we do consider that the likely impact has most probably been exaggerated by a number of commentators.” 

Ellis says that despite the recent gains house prices remain 12 per cent below their August 2007 peak and transactions in 2013 are still around a third below the average for 2006 and 2007.

He says: “Another year of similar price rises to those in 2013 next year would not be sufficient to create a bubble. In contrast, there were double digit percentage increases each year between 2001 and 2004. Overall, prices increased by 150 per cent in the eight years leading up to the house price peak in 2007.”

He also points out that typical mortgage payments as a proportion of disposable income were at 27 per cent in the third quarter of 2013, the lowest proportion since the second quarter of 1999 and comfortably below the average of 36 per cent over the past 30 years. 

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  • Realeconomic 23rd December 2013 at 12:58 pm

    Hooray at last a counterblast to all this nonsense in the media. This is the first time I have seen any informed participant mention the excellent, current affordability ratio. There is is a pretty iron economic rule, if a good becomes unaffordable, most people cannot buy it, ergo the price has to drop, either by a fall in demand or an increase in supply. Errr I thought that all our brilliant politicians wanted to stimulate the construction industry and general industry – that should be the result as the basic demand is undiminished. There is room in the affordability index for a substantial rate increase but in any event I will bet good money that rates will (as usual) only be increased to choke off inflation caused by consumer driven spending. Is anybody seriously suggesting that is likely any time soon. Only lending thru Payday loans is booming but the scale of the value of this credit in the economy is tiny (thank goodness). Other unsecured debt is rising faster rate than secured debt, perhaps because it is still very difficult to remortgage at any price or get any mortgage, that is not fully ‘status’ and at a higher LTV. That’s another limitation on house prices. Well done Halifax, Vince wake up and smell the sweet smell of a successful policy.

  • Gerwyn Bryan 23rd December 2013 at 12:39 pm

    Just goes to demonstrate the Politics being played out by the Lib Dems.
    Interest rate rises are not necessary to control any misuse of the Help to Buy Scheme, like wise the so called boom in the south east could be similarly controlled with both being regulated by the use of Postcode Restrictions on mortgage availability and/or access to the Help to Buy Scheme.
    Just Vince Cable playing Politics with the entire country again…………..Yawn!!