Morning Papers: Europe wades into Help to Buy row

The European Commission has waded into the Help to Buy debate, warning chancellor George Osborne that his controversial mortgage support scheme must be reined in to stop house prices getting out of control.

According to the Telegraph, the EC has called on the chancellor to “deploy appropriate measures”, including potentially increasing council tax, in a bid to control rising house prices, particularly in London.

The scheme has come under much criticism recently and has been blamed for pushing annual house price growth to double digits.

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The scheme allows prospective home owners to buy a new-build or existing home priced up to £600,000 with only a 5 per cent deposit, by offering guarantees over a portion of any potential losses for lenders.

The EC’s proposals were outlined in a document designed to tell Europe’s five biggest economies how they can “make growth stronger, more sustainable and more inclusive”.

“The Commission recommends that the UK deploy appropriate measures to respond to the rapid increases in property prices, notably in London, for example by adjusting the Help-to-Buy 2 scheme and mitigating risks related to high mortgage indebtedness,” the report said.

The Coalition must take “action” to increase housing supply, it added.

Recent figures published by the Treasury revealed the second phase of the government’s Help to Buy scheme has provided a “much needed lifeline to the housing market recovery in the regions”

The data revealed that in the first six months of the scheme, which was launched in October 2013, over 7,000 mortgages were completed with the support of the scheme. Of these 80 per cent were purchased by first-time buyers with a much higher proportion in the north-west and the south-east.

FTAdviser sister publication the Financial Times reported that three former chancellors of the Exchequer - Lord Lawson, Lord Lamont and Alistair Darling – said the second phase of the scheme has the “potential to inflate a future housing bubble”.

The Organisation for Economic Co-operation and Development said in its latest report that Britain’s housing market, buoyed by record low interest rates and several government-backed subsidies for home buyers, was in “danger of over-heating without further action by ministers and regulators”.

Data from the Bank of England, published yesterday (2 June) showed that mortgage approvals fell for the third consecutive month in April, “adding to signs that the housing market may be cooling”, the Financial Times said.

The data showed a drop to a nine-month low of 62,918, down 3,645 on the previous month.

“While the Mortgage Market Review, which tightened affordability standards, only came into effect at the end of April, economists believe banks began to tighten up before the new regulations took hold”, according to the FT.

Rising employment, record low interest rates, and elevated house price expectations would normally lead to a steady rise in lending, Matthew Pointon, property specialist at Capital Economics, told the paper.

He suggested that prices might now be “simply too high to support a steady rise in demand, particularly now that mortgage rates are beginning to edge up”.