Will the Help to Buy Scheme Cause a House Price Bubble?

April 18, 2017 11:00 am Published by

A popular scheme backed by the government, Help to Buy has made owning a house possible for thousands of first-time buyers and homeowners looking to move up the property ladder.

However, this influx of money and buyers to the market has inevitably had an impact and property prices are once more on the up. Though the scheme has been incredibly popular, it’s due to end in 2016 and currently, there’s no alternative scheme planned to take its place.

Recent years have seen big increases in house prices, partly thanks to Help to Buy. Many experts fear the scheme may have contributed to a house price bubble, something that could affect homeowners and investments across the country.

What is the Help to buy scheme?

Help to Buy was launched by the government in 2013 in an effort to kick-start the housing market following the financial crisis of 2008.

It allows buyers to purchase properties with just 5% deposit, with the government either guaranteeing a 95% mortgage or providing an equity loan to cover the remainder of the deposit.

Buyers can use Help to Buy to purchase properties worth up to £600,000 and both first-time buyers and property owners looking to move house can apply to the scheme.

How has it affected house prices?


Though house prices have risen considerably since the Help to Buy scheme was launched in 2013, only around 3% of the properties sold during that period were purchased under the scheme, so it seems unlikely Help to Buy has had a serious impact on the cost of homes.

However, it has made it significantly easier for the first time buyers to get a foot on the property ladder, increasing demand at the lower end of the market and driving sales.

Will the help to buy scheme cause a house price bubble in the UK?

Following the financial crises of 2008, housing bubbles burst in several countries around the world. Worst hit was the U.S, Ireland, and Spain where the prices plummeted and an overabundance of properties meant there was very little demand for homes.

Though prices in the UK fell by around 20% during this time, they stabilized quickly and then began to rise once more. This is because the UK doesn’t have an excess in the supply of houses. In fact, a property is more in demand than ever with around 250,0000 new homes needed every year to meet the population’s need.

As as result, the UK is unlikely to experience a property price bubble as dramatic as those seen elsewhere, even with Help to Buy scheme driving sales and enabling people to purchase a property.

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