Expect moderate UK house price rises after help-to-buy scheme expansion, Moody's says

27th Jan 2016 08:12

(ShareCast News) - The expansion of the help-to-buy initiative in the UK will increase mortgage lending, leading to "moderate rises in house prices", according to Moody's.The British government has increased the initial equity loan pay out from 20%, as originally enacted, to 40% to compensate for the larger gap between earnings and house prices in London versus the rest of the country.In a statement to clients on Wednesday, the ratings agency said net effect of the government's initiative is that house prices will increase at a rate of 0%-5%.Greg Davies, analyst at Moody's, said, "London in particular will benefit from a separate help-to-buy initiative, with a higher equity loan payout from the government."However, the London scheme is only limited to new builds, which limits its benefit somewhat. Amendments to the scheme will also open up the mortgage market to borrowers with low-to-mid incomes."But Moody's also said the government's preventative steps, such as limiting the benefit of the program to the owner-occupied sector, and surcharges in the buy-to-let space, may reduce demand and will curb an overheating in house prices on the back of the help-to-buy initiative's expansion.As early as mid-January 2016, there has been a 6.6% increase in the supply of one- and two-bed flats coming onto the market, which is a mainstay of the BTL sector.This anecdotally suggests that some investors may be exiting the BTL sector in light of the cuts to tax relief on interest payments announced in the Summer 2015 budget, the ratings agency concluded.