The government would risk stifling housing starts outside London if it decided to phase out its Help to Buy scheme, industry experts have warned.
Concerns were raised after Bank of England governor Mark Carney this week said the “biggest risk” to the UK’s economy was the housing market.
Mr Carney said the BoE could consider measures ranging from a new “affordability test” for mortgage borrowers to advising the government to curb its Help to Buy scheme.
The prime minister and deputy prime minister said they would pare back the scheme if BoE advised that the government should do so.
Shadow chancellor Ed Balls called for the £600,000 purchase cap on Help to Buy to be limited to under £400,000.
He said the government should also introduce Labour’s Help to Build guarantee scheme, which would aim to increase supply through improved access for finance for small and medium-sized builders.
EC Harris head of private residential Mark Farmer said concerns over the £600,000 purchase price limit on Help to Buy properties were “a red herring”, as most of its take-up to date had been outside London, where average house prices were much lower.
Mr Farmer said a lack of supply was increasing house prices, coupled with more foreign investors and cash buyers trading in the London markets.
Bovis Homes chief executive David Ritchie: “Mark Carney was right to warn about the increase in house prices. I’d actually prefer the market to be a little less buoyant to provide stability in the long term – I think most housebuilders would agree with this.”
Turley economic planning team director Antony Pollard: “In areas such as the North-west, Help to Buy has not had time to become established. It needs more time to gather momentum. The BoE should consider a model that focuses on regions excluding London.”
Pinsent Masons partner and planning specialist Richard Ford: “The extension of the Help to Buy equity loan was unnecessary. Mark Carney should phase out Help to Buy over the next 18 months – it was only supposed to be a short-term measure.”
One housebuilder source said Help to Buy’s equity loan scheme had helped to increase supply and added it would “be a strange outcome” if the government chose to phase it out early.
He said the government would be “shooting itself in the foot”, particularly as in March it extended the equity loan scheme of up to 20 per cent of the value of new-build homes until 2020.
The second mortgage guarantee phase, which provided loans for homebuyers of up to 95 per cent, will expire in March 2016 as planned.
Linden Homes group managing director Andrew Richards said “it is difficult to understand” why Help to Buy had been highlighted as “the sole reason for house price growth”, as it only accounted for a small proportion of housing transactions.
Construction Products Association economics director Noble Francis said Help to Buy had been a signal to housebuilders that the government was willing to enable more demand, which allowed them to increase supply without harming land value and margin.