Concerns that a new government program to help kick start the U.K. housing market is helping fuel a dangerous rise in prices is "misguided", according to a leading economic forecasting group.
Economic forecaster the Ernst and Young ITEM Club said in a new report on Monday that the Government's "Help to Buy" mortgage guarantee scheme will lead to a rapid improvement in prospects for the housing market and added that fears of a housing bubble are unfounded and premature at best.
The second stage of the "Help to Buy" home-buyers' program was launched last Tuesday, whereby the government will guarantee part of a home-buyer's mortgage on properties worth up to £600,000 ($918,000). The scheme joins the "Funding for Lending" scheme - overseen by the Bank of England - which aims to encourage the U.K.'s banks to lend more to families and businesses.
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With housing indicators turning increasingly positive, concerns have been raised that the U.K. housing market could be forming a bubble. High-profile critics of the program have included both The International Monetary Fund and former Bank of England Governor Mervyn King who called it "too close for comfort" to the U.S. mortgage guarantee schemes that some blame for triggering the financial crisis five years ago.
On Sunday, Antonio Horta-Osorio, chief executive of U.K. lender Lloyds told the Financial Times that the scheme risks creating a dangerous bubble in property prices unless steps are taken to free up planning restrictions and boost the supply of new housing.
British house prices rose at their fastest rate in 11 years in September and sales hit a four-year high, a survey by the Royal Institution of Chartered Surveyors showed last Tuesday, suggesting a sustained recovery in the property market. Meanwhile, property website Rightmove has predicted that prices will increase by 6 percent this year, from an initial estimate of 2 percent at the start of the year.
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