Mortgage scheme 'driving up prices'

Updated: 

Property

The Government's Help To Buy scheme will make home ownership less accessible overall by driving up house prices, a think-tank has warned.

The Adam Smith Institute (ASI) said Help To Buy - which includes an equity loan scheme and a mortgage guarantee scheme, to be launched in January - will simply increase demand for houses without a similar increase in supply, therefore driving up house prices.


Those using the scheme will therefore benefit but everyone else will lose out, the Institute said.

The think-tank advised the Government to radically liberalise planning laws to increase the supply and affordability of housing in Britain.
Otherwise, the Institute warned, Help To Buy "risks recreating the perverse incentives that led to the 2000s-era US housing bubble" and subsequent subprime mortgage crisis - a major factor in the worldwide financial crash of recent years.

The Institute also claimed the scheme redistributes wealth from taxpayers to house buyers and also exposed taxpayers to losses on equity loans with no guarantee of a return.

The Institute's research director Sam Bowman said: "It is crazy for the government to stoke demand even more without addressing supply and claim that this will help the housing market.

"Making taxpayer-subsidised handouts to homebuyers will only drive further house prices up, risking a bubble, improving access for a select few but making housing even more unaffordable for most people.

"On the other hand, radical liberalisation of the planning system has the potential to drive massive economic growth, drastically reduce housing costs for the badly-off, and give millions more a chance to own property of their own. "

Preston Byrne, the think-tank's legal fellow, said: "Deregulation is a way of addressing the housing supply shortage while avoiding recourse to public fiscal intervention.

"If the Government is serious about finding a long-term solution to the housing crisis, it's time to take a hard look in the mirror and examine the role existing planning regimes - both local and national - play in regulating and inhibiting new housing construction."

A Department for Communities and Local Government spokesman said: " Home ownership is now at its most affordable for six years. This Government's package of measures to boost both supply and demand in the housing market is working and new housing supply is now at its highest level since 2008.

"We're determined to pull out all the stops to get Britain building which is why we are investing £19.5 billion public and private funding into an affordable housing programme for 170,000 homes and have introduced £10 billion loan guarantees to encourage greater investment in new private rent homes.

"A total of 319,000 additional homes across England have also been added to the housing supply in the two years from October 2010 to October 2012.

"With over 10,000 reservations in four months, it's clear that the Help to Buy: Equity Loan scheme is working well.

"By dealing with the big challenges, we are helping thousands of young people and families get on and move up the housing ladder, and Britain is building again."

© 2013 Press Association