OECD call for government to reform their Help to Buy scheme

The British government should begin to look into reforming the Help to Buy scheme in order to stop property prices from soaring too fast and potentially causing a fresh housing bubble, a leading economic forecaster has argued. 
The OECD highlighted that house prices are moving too fast compared to household incomes and rent costs at present, and that the market could be at risk of overheating unless ìtimely measuresî are considered in order to check the usage of the governmentís flagship scheme.
Help to Buy was unveiled by the government last year as a two-pronged initiative to revive demand in the property market and help first time buyers get on the market. 
The first phase of the scheme, the Equity Loan scheme, was launched last April in England, September in Scotland and January this year in Wales, and has enabled new build home buyers to acquire a mortgage as high as 75% the value of the property they are intending to construct. They have also been able to start work on the house with just a 5% deposit requirement and have been given 20% of the propertyís value by the government in the form of an equity loan. 
It has been estimated that 19,394 newly built properties have been erected since the start of the scheme, with Chancellor George Osborne recently announcing the schemes extension till 2020.
However, it is the second phase of the Help to Buy, the Mortgage Guarantee scheme that has come under fire for the artificial inflation in demand that is has caused in the property market which has caused supply to fall far behind. This has meant that property prices have risen as demand continues to outstrip supply, and mortgage applicants have begun to take on higher levels of debt, whilst only having to pay a 5% deposit in order to secure the home.  
Under the scheme, mortgage applicants can also acquire a secured loan as high as 95% loan to value of the property, with the cheap nature of the scheme meaning that people have flocked to capitalise on the low market costs to purchase a house and have taken on levels of debt that will substantially rise when interest rates eventually do rise. 
The recent resurgence in demand has reflected in recent house price disclosures, with the Land Registry releasing data that indicated that property prices have risen by 5.6% in the year from March 2013 to 2014. 
And the OEC has called for the government to act and ërestrainí the property demand in the UK which is being propped up by bank debt. It did however praise the Bank and the government for refocusing the Funding for Lending scheme away from mortgage lending and into business lending. 
Other modifications to the scheme that the OECD suggested were harder access to Help to Buy loans and larger deposits “to ensure a balanced recovery in the housing market”, it said.
The Bank of England has persistently identified that they have a plan of action to prevent any bubble occurring, and have reiterated the sentiment that they have the property situation in the UK under control. 
However, Sir Jon Cunliffe, deputy governor at the Bank of England warned the government and bankers last week that it would be “dangerous to ignore the momentum that has built up in the housing market”.
The Treasury has since responded, seeking to play down fears by highlighting that they are constantly monitoring the market to ensure that no bubble occurs in the near future. 
A spokesperson said: “The chancellor has said we must remain vigilant in order to avoid repeating the mistakes of the past.

“This government has given the Bank of England new powers and new responsibilities to monitor risks in the economy and take action if necessary, something that did not happen before the crash.

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