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Help to Buy could increase house prices 20% by 2015

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Help to Buy could push first-time buyer house prices up 20% to over £150,000 by the end of 2015, a financial consultancy has warned.

Fathom Consulting suggested under normal conditions, the government scheme would lead house prices to inflate by 10%.

However, the promotion of 95% loan-to-value mortgages indicated a looser market, meaning the figure could be more like 20%.

Using recent house price index figures, this means the average first-time buyer house price could reach over £150,000 and the average house price come close to £300,000 in two years.

According to the report, Help to Buy is a reckless scheme which has the potential to increase house prices and hike up household debt to record levels.

It said: “Had we been asked to design a policy that would guarantee maximum damage to the UK’s long-term growth prospects and its fragile credit rating, this would be it.”

The scheme allows a homebuyer to take out a mortgage with a deposit of 5%, as the government underwrites 14.25% of the property and the lender guarantees a further 0.75%.

The report also highlighted that the Monetary Policy Committee is unlikely to react to another housing price bubble by tightening monetary policy. 

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