The UK government's revived Help to Buy scheme, specifically the Your First Home plan, has sparked controversy among market watchers who view the current housing decline as a necessary correction. While nominal prices in London are falling and affordability is improving, the author argues the market is not correcting due to new construction but rather due to higher interest rates and anticipation of further increases. The average two-year fix for borrowers with a 75% loan-to-value ratio rose from 3.93% in January to 5.14% in April, reflecting geopolitical tensions.
Since 2022, the market has become 'zombified,' stuck between boom and bust, with stagnant prices becoming a permanent feature. The Your First Home scheme risks creating another monster by boosting demand and loading young people with more debt, as the housing system relies on rising prices. Falling prices reduce transactions, and while falling interest rates can counterbalance affordability, the market currently stumbles in hope of rate cuts, feeding on first-time buyers borrowing multiples of their income.
Source: Financial Times Companies · Summarized by HeadlinesBriefing