Peter Spencer, Chief Economic Adviser to leading economic forecasters the EY Item Club, has told the BBC that the risk of a housing bubble being created by the government’s “Help To Buy” Scheme is “extremely slim”. Instead, he claimed that the government’s scheme was “well-timed and targeted.”
The “Help to Buy” Scheme has attracted a lot of criticism since it was announced at the Conservative Party Conference last month. Business Secretary Vince Cable had expressed concerns of “serious housing inflationary pressures” developing across the country. He told Sky News, “if you are in Northern Ireland or Wales or indeed the East Midlands you would wonder what all this is about.”
“But certainly in London and the South East, in the North-East of Scotland, in other areas, there are serious housing inflationary problems.”
Cable’s concerns were backed up by the Chief Exectuive of Lloyds Banking Group, Anotnio Horta-Osorio, who in an interview with the Financial Times last Monday called for the easing of planning restrictions, so that new homes could be built in a bid to avoid a “substantial” increase in house prices.
The Labour Party has argued that the government’s Help To Buy Scheme will create a housing bubble, and the only way to solve the countries housing problems, is to build new houses.
However, Mr Spencer told the BBC that he felt that the efforts to revive the mortgage market were “well-timed and targeted.”
The UK housing market, he argued, “is extremely depressed. It’s just coming out of a very large recession, which has seen house prices fall and the number of people moving home is well down.”
Help to Buy, he felt, would encourage a more upbeat market.
He said, “If you want a normally functioning economy, you need a properly functioning housing market.”
“It’s really wrong to be just looking at the downside.”
He felt that the Help to Buy scheme would also encourage more building work on new homes, if construction firms could see a more vibrant market emerging. He believed the signs to be positive. “House construction is up…planning permission applications are up, it all looks very encouraging….builders will build if they see a vibrant market.”
Help to Buy is the new initiative from the government. Under the second phase of the scheme, buyers will be able to put down a deposit for as little as 5%. It will be available for properties sold for up to £600,000 in the UK. The scheme will start from January 1st and last for the next 3 years. We wrote a blog about it last month, which you can check out here.
Despite the gloomy warnings regarding the housing crisis, the EY Item Club were optimistic about the UK’s economic growth.
According to the BBC, the Item Club forecasts investment in the housing market to rise by 7.5% by the end of next year, followed by further growth in 2015.
The Club also predicted overall economic growth to rise to 1.4% from 1.1% and is expected to grow to 2.4% by the end of next year.