London Mayor Boris Johnson said the capital’s house prices are suffering from “serious inflation” and demand for property is so high there’s unlikely to be a house-price bubble that then bursts.
Johnson was speaking a day after Prime Minister David Cameron announced that the second phase of the government’s “Help to Buy” program will start next week, three months earlier than planned. Cameron and other ministers have dismissed criticism that the plan, to aid Britons frozen out of the property market by the need for high deposits, will create an unsustainable property boom.
“I do think you are seeing very serious inflation in house prices in London,” Johnson said in an interview today near Manchester, northern England, where he’s attending his party’s annual conference. “Whether that is likely to produce a popping of that bubble, a very big fall in house prices, I slightly doubt, because the natural demand is so strong.”
Help to Buy has drawn warnings of a property bubble from the International Monetary Fund and from Business Secretary Vince Cable, a member of the Tories’ coalition partners, the Liberal Democrats. The first phase, interest-free loans for buyers of newly built homes, began in April and has already contributed to the strongest housing market since the financial crisis. Cameron argues property-price inflation hasn’t hit areas outside of the capital.
“I don’t think there will be a big falling-off of property values,” Johnson said. “On the contrary, I think Londoners will continue to find it very difficult to afford new homes. The answer has got to be to build hundreds of thousands more of them.”
Asking prices for homes in London were 8.2 percent higher this month than a year earlier, Rightmove Plc (RMV) said Sept. 16. That’s almost twice as much as the national increase of 4.5 percent.
Chancellor of the Exchequer George Osborne said Sept. 27 he will introduce checks every September on the Help to Buy program with the Bank of England in response to the concerns it might spark a bubble. The bank’s Financial Policy Committee will advise Osborne on whether key parameters, such as the price cap and the fee charged to lenders, remain appropriate.
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