ONE of Britain’s leading economists today warned of a potentially “disastrous” house price crash due to a new Government home-buying scheme that many fear is causing an unsustainable bubble.
Reacting to the announcement of an extension to the Help to Buy scheme, under which the Government will guarantee part of a home-buyer’s mortgage on properties worth up to £600,000, Graeme Leach, Chief Economist at the Institute of Directors, said:
“The housing market needs help to supply, not help to buy and the extension of this scheme is very dangerous. Government guarantees will not increase the supply of homes, but they will drive up prices at a time when it seems likely that house prices are already over-valued.
“When the scheme is withdrawn any rise in prices that has taken place will be undermined, with potentially disastrous results. There is a real risk that the housing market will become dependent on the underwriting by government, making it very difficult politically to shut the scheme down. This should be of great concern.
“The world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages.
”Instead of trying to pump-up prices, the Government should focus on relaxing planning laws and reducing Local Authority charges on developers to make it easier to build more homes.“
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