Call to scrap Help to Buy in London as prices become 'absurd'
01-20-2014
Legal & General CEO says drop scheme in London, warning that it is 'stoking up demand’ leading to 'absurd house prices’
Mr Wilson argued that house prices in London and the South East had reached “absurd” levels Photo: Marco Secchi/Alamy
By Kamal Ahmed
One of the leading players in the UK housing market has said that the Government should abandon its Help to Buy mortgage support scheme in London.
Nigel Wilson, the chief executive of the insurance and investment giant, Legal & General, said that the scheme risked stoking a price bubble which would put homes out of the reach of all but the most affluent.
In an interview with The Telegraph, Mr Wilson argued that house prices in London and the South East had reached “absurd” levels and said that the Government support scheme for mortgages for houses up to £600,000 was pushing up demand at a time when the supply of affordable housing was the problem.
Last year, average house prices across Britain increased by 8.4pc, with the figure rising to 15pc in London. Inflation is running at 2pc and income growth at less than 1pc, meaning the “affordability index” for housing is rising.
“Help to Buy turbo-charges an already rising market inside London – stopping it would be economically sensible and help prevent the North-South divide getting even wider,” Mr Wilson said.
“[The Government] should stop stoking up demand, there is already lots of demand and this will create a bubble for the future. There is a UK obsession with housing and our growth is excessively dependent on it.”
He said that young people were being encouraged into “over-leveraged” situations.
L&G is a significant player in the housing market, buying the house builder Cala Homes in 2013 in a £210m deal from Lloyds. It also owns land across UK cities, which it is planning to develop for housing, and facilitates up to £20bn of mortgages.
Investment in housing projects will come from L&G’s investment arm, Legal & General Investment Managers, which has access to up to £15bn of funding to be used in the next decade.
Mr Wilson said that one of the quickest routes to unlocking the housing market was to give older people the chance to downsize. He said the lack of options meant that retired people found it difficult to move to smaller houses, effectively blocking the release of family homes.
L&G estimates that up to £1 trillion of equity is locked up in under-used homes owned by retired people and that up to 4.5m people want to move to more suitable accommodation. “Everybody talks about the first-time buyer, we need to be just as focused on the last-time buyer,” Mr Wilson said.
“There is a chronic shortage of choice for them. [Unlocking] under-used housing and trapped equity is a big part of the solution to our housing problem.”
L&G is now looking to enter the growing equity-release market, providing schemes that allow people to access funds linked to the value of their home. Some of the existing schemes have been criticised for charging high rates of interest.
“Regulation is clearer now, which should enable us to provide the right good-value products to help grow an undersized but vitally needed market,” Mr Wilson said.
Figures from L&G reveal that the lack of housing supply means that rents are pushed up, increasing housing benefit costs.
In 1975, the figures show, 80pc of public spending on housing was capital funding to build homes and connected infrastructure. Now, over a five-year cycle, £95bn is spent on housing benefit and only £5bn spent supporting house building.
Although the number of people on housing benefit has only risen slightly, the amount spent supporting claimants has risen rapidly.