The OECD has warned that UK house prices were rising at an alarming rate when compared to rents and household income.

The Organisation Economic Co-operation and Development (OECD) has said that the UK needs to control house price rises which have been assisted by the Help to Buy scheme.

The OECD have welcomed action taken by the Bank of England to slow down the housing market by withdrawing the Funding for Lending Scheme (FLS) which offered cheap mortgage loans to banks.

They also warned that significant changes in pension legislation could also release capital that could be used to purchase properties including older buy-to-let investors.

Help to Buy inflating prices

Last week deputy Governor of the Bank of England, Sir Jon Cunliffe said there was evidence the Help to Buy scheme was increasing house prices.

Data from the Nationwide Building Society shows that prices had grown by 10.9% in the last year and this has extended across the country, not just London rising at 18% over the last year.

However, the main reason behind property price rises as been the lack of supply of homes for sale driving values higher London and the south east of England.

The Bank has not limited Help to Buy yet but could do so by reducing the £600,000 upper house price limit.

The scheme promotes new homeownership for people that are renting and is not available to switching remortgage buyers or buy-to-let investors.

How does Help to Buy work

There are two parts of the Help to Buy scheme.

The first was started in England in April 2013 and Wales and Scotland from January 2014 allows first time buyers to place a 5% deposit of the properties value but is only available to new-build homes.

The government will provide an interest free equity loan of 20% of the property value and the 75% balance is a mortgage from a lender.

In the first year 19,394 homes were purchased and this first phase was extended by George Osborne until 2020.

The second phase of the scheme was started from October 2014 until the end of 2016 and is slightly different offering a government guarantee to lenders against losses. It is also available to home movers as well as first time buyers.

It allows for a small deposit of 5% from the buyer and the government will guarantee the lender 15% of the property value. The buyer will need to secure a 95% mortgage loan which is available on properties up to £600,000 in value.

Help with the deposit for a new home can come from family members as the equity release buyer can access cash using a lifetime mortgage and gift to a children or grandchildren.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to improve your quality of life, pay for care at home or even reduce inheritance tax owed by your beneficiaries.

Learn more by using the property value tracker chart, mortgage cost calculator and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.

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