England’s house price roller-coaster is climbing again. According to listings giant RightMove, asking prices in September rose by 10% (or £50,000) in London as well as faster than wages in many other parts of England.
Has George Osborne’s recently launched Help to Buy mortgage guarantee scheme sent house prices rocketing?
Well a first note of caution is that asking prices are not the same as sales prices. Sellers may be optimistically over-pricing their homes and be forced to lower prices if buyers can’t respond. Equally, the massive September spike may be down to a particular surge in listings at the top end of the market skewing the average and not be representative of other parts of the market.
However with Help to Buy launched with so much fanfare last month, it’s important to unpick its role in this.
On first glance, it’s hard to see how it would be having much of an impact. For a start, the scheme does not make buying a home more affordable for most families, especially those in the capital. This is because it requires buyers to take on much bigger mortgages. Bigger mortgages mean unaffordable monthly payments.
Banks are also pricing their new 95% state guaranteed mortgages with (relatively) high interest rates, while rates on loans where the buyer has more equity remain at historic lows. State guaranteed mortgages – just as with Funding for Lending and low Bank of England base rates – are more help for those already with a lot of equity than for those scraping together a small deposit.
If Help to Buy is not creating more buyers, then why does it seem as though house prices are responding to the scheme’s launch? I suspect that the expectation of rising prices is the main culprit. According to estate agents Knight Frank, expectations of rising prices are at their highest since the banking crisis. With sellers and estate agents convinced that Help to Buy is boosting demand, prices are being yanked up another notch. Worried buyers may be responding by stretching themselves to the limits, convinced that if they don’t get on the ladder now they never will.
In other words, it looks as though it’s not yet the policy itself that’s causing sellers to raise asking prices – it’s the buzz around it. After all, state guaranteed mortgages won’t actually be given out until January 2014.
Rather than ramping up mortgage lending (and expectations of house price rises), we need bold action to solve the housing shortage. House price inflation is not working for most families and that’s why 66% of voters now oppose it, compared to 58% in June.
Government policy should be aiming for an era of stable house prices, so that families can catch up. Until then, each passing month will see more and more families lose hope in a home of their own.