One of the UK’s leading economic forecasters, EY Item Club, stated that the chances of a housing bubble in Britain are “extremely slim”.
House prices will increase by 3.5 per cent this year according to the forecaster, largely due to initiatives such as Help to Buy. EY Item Club also estimated that house prices would rise by 6.6 per cent next year.
The chief executive of Lloyds Banking Group, Antonio Horta-Osorio, recently echoed Business Secretary Vince Cable’s concerns over a housing bubble. Horta-Osorio said in a recent Financial Times interview that planning restrictions should be eased in order to increase house building and cool off the property market.
But Item Club's chief economic adviser, Peter Spencer, said, "Despite the recent criticism of these initiatives, the chances of seeing another housing market bubble are extremely slim.”
Spencer pointed out that house price rises were “paltry in comparison” to those of ten years ago.
He also said that in terms of household finances, “debt to income ratios [are] now at sustainable levels."
The second phase of Help to Buy enables house buyers to put down just a 5 per cent deposit on a property worth up to £600,000, with the government guaranteeing 15 per cent of the loan value for seven years.
EY Item Club is upbeat about housing investment in the UK, forecasting a 7.5 per cent rise in 2014, followed by a 10 per cent rise the year after.
The forecaster has re-evaluated its estimate for 2013 growth, putting it at 1.4 per cent, up from 1.1 per cent. 2014 growth is estimated to be 2.4 per cent, up from a 2.2 per cent forecast.