OECD calls to control rising UK house prices
The UK government should consider more restrictions on the Help to Buy scheme as house prices continue to rise, an economic forecaster has said.
Help to Buy is a two-pronged attempt to encourage activity in the UK housing market. Prices in many areas have risen since its launch.
The OECD has said that property prices were soaring when compared with rents and household incomes.
"Timely measures" could be used to stop the market overheating, it added.
Regarding the UK economy as a whole, the OECD said that the recovery had picked up to "a robust pace", and that an improving picture for jobs was assisting household consumption. It said the unemployment rate had fallen "more rapidly than expected".
It increased its forecast for economic growth in the UK for this year and next.
In November, it suggested that GDP would be 2.4% in 2014, but the prediction is now 3.2%. This is higher than the forecasts for the US (2.6%) and the Eurozone (1.2%).
For 2015, it previously predicted GDP of 2.5% in the UK, but the latest prediction is 2.7%.
Help to Buy
There are two elements to the Help to Buy system.
The first, which was launched in England in April last year, in Scotland in September, and in Wales in January 2014, allows buyers to put down a deposit of 5% of the property's value. This has to be on a newly-built property.
This enables the buyers to take out a mortgage of up to 75% of the property's value. The difference is made up with an equity loan of up to 20% from the government.
During its first year, some 19,394 new homes were sold under the scheme. In the Budget, Chancellor George Osborne extended this element of Help to Buy in England until 2020.
The second phase of the scheme, which began across the UK last October and will run until the end of 2016, offers a government guarantee against losses for lenders who are prepared to offer mortgages to people with only a small deposit.
Since both elements of the scheme were started, average house prices have risen sharply in the UK.
The latest figures from the Land Registry for March showed a year-on-year price rise of 5.6%. However, lenders have reported higher annual average increases.
A lack of supply of homes for sale to match increased demand has generally been considered to be the main reason behind the property price rises, which have been driven by increasing values in London and the south east of England.
The OECD said that action had already been taken to "restrain" housing demand fuelled by bank debt. It welcomed the withdrawal of Funding for Lending support for mortgage lending.
However, it said more could be done.
Tighter access to the Help to Buy programme, or demands for higher deposits from mortgage borrowers should be considered "to ensure a balanced recovery in the housing market", it said.
The Bank of England has said consistently that it has tools available to prevent the housing market growing into an unsustainable bubble.
However, Sir Jon Cunliffe, one of the Bank's deputy governors, told bankers last week that it would be "dangerous to ignore the momentum that has built up in the housing market".
Meanwhile, the UK Treasury said: "The chancellor has said we must remain vigilant in order to avoid repeating the mistakes of the past.
"This government has given the Bank of England new powers and new responsibilities to monitor risks in the economy and take action if necessary, something that did not happen before the crash."