House prices: the government wants them up, you want them down

Merryn Somerset Webb explains why the Help to Buy scheme is looking at Britain's housing problem from the wrong angle.

A month has passed since the second stage of Help to Buy was introduced. You can read more about this in this week'smagazine, or watch the Panorama on the matter tonight (I'm in it, if that makes any difference to whether or not you watch it).

But the stats on month one are quite interesting in themselves. The point of this phase was to raise transactions without raising prices. There have so far been 2,384 applications for houses priced at an average of £163,000.

The average monthly payments of the applicants will come to about 24% of their income, and some three quarters are first-time buyers. 75% are also from outside London and the south east. That's all according to the official press release.

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RBS has put out a similar one (no surprise there). One thousand of the applications have gone to it. The average price of the houses applicants want to buy is just over £167,000, and the majority of buyers are first-time buyers under the age of 34.

RBS also stresses that the average joint income of buyers is under £50,000. The idea is to make it clear that it is the young and not very wealthy who are being helped on to the gold-plated property ladder in the UK. And by extension, that Help to Buy is a good thing.

But it isn't that simple. As the FT points out, if 75% are first-time buyers, 25% are not. They already have their foot on the ladder (if not very firmly).

The other point worth noting is that 24% is a pretty high percentage of your income to be spending on your mortgage in historical terms. Neal Hudson of Savills has had a look at this, and notes that whatever the government might like to say on the matter (ie, that 24% is in line with long-term averages and so just fine), the long-term average percentage of their income that first-time buyers have spent on their mortgage payments is more like 20% than 24%.

That's quite a difference, particularly when interest rates are obviously more likely to rise than fall. Still, the key reason we remain suspicious of Help to Buy is because adding new demand to the market is likely to push up house prices (and it has surely already pushed up asking prices, if not transaction prices).

The government seems to think that this is what most people want. We aren't so sure. We did a survey with Ipsos Mori last week in which we asked people if they wanted house prices in their area to rise or fall. Of those asked, 29% said they wanted them to go up, and 39% said they wanted them to go down.

It still seems to us that Help to Buy is looking at the problem from the wrong angle. Surely tighter credit and lower prices are better than looser credit and higher prices?

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.