A housing expert has warned that when the new Help to Buy equity loan scheme goes live early this year, it will provide a “dangerous incentive for young buyers”.
Stuart Law, CEO at Assetz for Investors, was commenting specifically on the London market.
In the capital, Help to Buy will shortly offer a 40% interest-free loan on properties worth up to £600,000, with buyers needing only a 5% deposit.
Law said that in some parts of London, there was already low annual house price growth and he expects this to turn negative this year.
He said: “The new Help to Buy equity loan in the capital will provide a dangerous incentive for young buyers to join this overheated market at perhaps exactly the wrong moment.
“The price reversal is pretty inevitable and will push many recent home buyers into negative equity.”
The Government announced at the end of November that it will be increasing the upper limit from 20% to 40% under the Help to Buy scheme in London. It has not yet given the exact date for the change.
Law was speaking as a number of house price indices reported inflation across the whole country.
The average house price across England and Wales was £186,325 in November, the Land Registry has said.
The figure represented annual house price inflation of 5.6% and a monthly rise of 0.4%.
The number of house sales in September – the latest month for which data is available – stood at 72,397, down 8% on September 2014 when there were 78,877 sales.
In London, sales stood at 8,781, down 13% on the 10,134 transactions in September 2014.
Separately, Nationwide reported that house prices ended the year at £196,999, up from £196,305 in November. According to Nationwide, UK annual house price growth was 4.5% in December, with London house prices up 12% year on year to stand at 50% above their pre-crisis peak in 2007.
In other house price data, haart estate agents said that its average sales-agreed price in November was £231,857 – the first time the average in its branches had gone past the £230,000 mark.
In London, haart said that the average ‘sold subject to contract’ price in November was £525,780 in November.
CEO Paul Smith said there had been a “surge” in applications from buy-to-let investors keen to beat the April 1 deadline for the 3% Stamp Duty surcharge.
He said: “UK house prices rose 13.4% annually and 3.7% on the month to break records again in November.
“This is the steepest monthly and annual increase on record and follows a surge in registrations from buy-to-let investors since the Autumn Statement in anticipation of the 3% Stamp Duty surcharge which is effective from April 1.
“This could mean the Stamp Duty payable on a property worth £275,000 could rise from £3,750 to £12,000.
“Although first-time buyer house prices have remained relatively stable, up just 1.1% in the last month, I expect these to shoot up over the coming months as first-time buyers face fierce competition from buy-to-let investors.
“While first-time buyers may face a tough couple of months, once the Stamp Duty changes come into effect in April, demand from buy-to-let investors is likely to recede, so we should see a recovery in prices at this level.”