Fears of new housing bubble as government helps buyers

 
Tim Wallace
Follow Tim
THE NEW plan to boost the housing market by giving those with little in savings a leg up could backfire, creating a dangerous new bubble and putting public funds at risk, economists warned yesterday.

George Osborne’s Help to Buy scheme offers guarantees to those with low deposits to give them a foot on the housing ladder.

Under the scheme buyers with a five per cent deposit could see the next 15 per cent guaranteed by the Treasury, so that banks see them as artificially lower-risk borrowers.

But a new analysis from Fathom Consulting predicts this could send the market through the roof.

Combined with continued ultra-low interest rates, its economists believe the scheme could push prices up 20 per cent by 2015.

The latest official statistics put the average house price in the UK at £233,000 in February – a figure which would rise to £280,000 according to the economists.

“This has the potential to take indebtedness in the UK household sector back to record levels, just as the deleveraging process appears to be getting underway,” said the consultancy. “Help to Buy is a reckless scheme that uses public money to incentivise the banks to lend precisely to those individuals who should not be offered credit.”

Nobody from the Treasury was available to comment.