U.K. Prime Minister David Cameron defended his Help to Buy housing initiative today as new figures eased concerns it’s contributing to a property bubble.
The number of homes bought with the support of a government mortgage guarantee totaled 7,313 in the first six months of the program, equal to 1.3 percent of all loans completed, the Treasury said. Eighty percent went to first-time buyers.
The initiative, which is aimed at allowing people with little cash for a down payment to get onto the property ladder, has drawn criticism from politicians and economists as U.K. house prices surge by 10 percent a year, with even steeper gains in London. The Organization for Economic Cooperation and Development said this month that Help to Buy should be restricted.
“Help to Buy has helped thousands of hardworking people to buy a new home, and crucially it is helping to increase the number of new homes being built,” Cameron said during a visit to Derbyshire in central England. “It is an important part of our long-term plan to back those who want to get on and secure a better future for Britain.”
The first part of Help to Buy -- interest-free loans covering 20 percent of the value of newly built homes costing as much as 600,000 pounds ($1 million) -- began in April last year. Mortgage guarantees for new and existing homes were made available in October.
According to the Treasury, mortgages supported by the government guarantee totaled 1.1 billion pounds ($1.8 billion) between October and March. In March alone, the number of homes purchased under the initiative stood at 2,657 compared with 2,090 in February.
Only 5 percent of the properties purchased were in London in the latest six months. Northwest England accounted for 14 percent and Scotland for 13 percent.
Almost half the homes changed hands for less than 125,000 pounds, while homes valued at more than 250,000 pounds accounted for just over 7 percent, reflecting the fact most properties were sold outside London and the southeast of England.
Only 189 homes valued between 350,000 pounds and 600,000 pounds were acquired using the guarantee program. That suggests lowering the ceiling on Help to Buy, as proposed by some critics, would have a only a small impact, said Citigroup Inc. economist Michael Saunders.
Financial stability officials at the Bank of England will assess next month whether action to cool housing demand is needed after Governor Mark Carney warned the strength of the market poses the biggest risk to Britain’s economy.
“Looking at usage data available today, there is further evidence the scheme is unlikely to be inflicting significant damage, or fueling a London bubble,” Victoria Clarke, an economists at Investec Securities in the capital, said in a note. “The scheme appears to be relatively small beer when laid out against transaction activity nationally.”
The average value of homes sold with a mortgage guarantee was 151,597 pounds, compared with the U.K. average house price of 252,000 pounds, the Treasury said. Taking both Help to Buy programs together, 27,861 homes have been purchased with an average value of 191,295 pounds.