George Osborne says Help to Buy unlikely to affect house prices

Despite a widespread condemnation of the Help to Buy scheme and an already overheating property market, George Osborne has now gone on record stating that “the Office for Budget responsibility has estimated that during the three years the scheme will be running, there will be over 3.4 million property transactions. Of these only 2% will be with the support of the Help to Buy Equity Loan scheme and therefore it is unlikely that the scheme will have a material effect on house prices.” 

Help To Buy jpgHowever, during the first five months of the scheme, over 12,000 households have already reserved a new home using the Help to Buy Equity Loan scheme. At the current rate of take up there will be 18,400 more buyers using the Equity Loan scheme, 27% more than Mr Osborne’s forecast. With house builder’s average prices rising around 7.6% over the last 12 months and outstripping price rises in the general housing market, as house prices get even further out of reach, even more buyers will need to use the Help to Buy Shared Equity Scheme. 

BubbleReaders should note that Mr Osborne specifically avoided saying that the recently brought forward Help to Buy Mortgage Guarantee scheme will not lead to a house price bubble.

When asked about a Windfall Tax Levy on excessive house builder’s profits generated by the government’s Help to Buy scheme he said that:

“A windfall tax on profits could undermine business confidence and have a negative impact on business investment and growth.”

He confirmed “the government is committed to creating the most competitive tax regime in the G20 to show that the UK is open for business and to increase business investment and profitability that drives economic growth. As part of this commitment, the main rate of corporation tax has been reduced from 28% in 2010 to 23% from April this year and will be further reduced to 21% next year and 20% in 2015”. 

So whilst house builders are ‘filling their boots’, with some reporting pre tax profit rises of up to 74%,  Mr Osborne does not feel it is in the best economic interests of UK plc, to rein in some of this state-generated excess profit for the benefit of the UK taxpayer via windfall tax levy.  No doubt he has one eye on the 2015 election and big company contributions to his party’s funding for the coming election campaign. So much for “we are all in it together” – no doubt the British voter will express their opinion of this government in the polling booth.

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One Response to George Osborne says Help to Buy unlikely to affect house prices

  1. Bubble what bubble?
    “And like his dreams (of being re elected) they fade and die”

    Just shows how little the government and their advisors actually know!

    Only on Monday, the new deputy governor of the Bank of England, Sir Jon Cunliffe, told MPs that it “doesn’t look that we are in a bubble”.
    It would appear that some people will never see a bubble until it hits them in the face and bursts!

    Howard Archer, the chief UK economist of IHS Global Insight, also says “We are a long way off from an overall housing market bubble emerging, however, the government’s Help to Buy scheme could inflate prices significantly”

    Only yesterday the Office for National Statistics (ONS) released figures showing house prices had now risen to record levels, surpassing the previous pre credit crunch high in 2008. Unlike lender’s surveys, the ONS index is calculated on actual transaction prices, the Halifax and Nationwide only use mortgage approvals. The average price of an UK home is now £247,000, just £3,000 below the 3% stamp duty threshold.

    In the 12 months to August 2013 UK house prices increased by 3.8%, up from a 3.3% increase in the 12 months to July 2013. House price growth remains stable across most of the UK, although prices in London are increasing faster than the UK average.

    The year-on-year increase reflects growth of 4.1% in England, 1.1% in Northern Ireland and 1.0% in Wales, offset by a fall of 0.7% in Scotland. Note: Scotland does not yet have “Help to Buy”!

    In August 2013, prices paid by first-time buyers were 4.9% higher on average than in August 2012. For owner-occupiers (existing owners), prices increased by 3.3% for the same period.