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Housing bubble 'possible if Help to Buy targets are met'

Economists have warned that a house price bubble could emerge if the second stage of the government's Help to Buy scheme is as successful as the Treasury hopes.The chancellor has ringfenced support for up to £130 billion of high loan-to-value mortgages  through £12 billion of guarantees by the time the programme finishes in 2016, the Telegraph reports.Last week, the prime minister hailed the success of the Help to Buy scheme after official data revealed it had assisted more than 27,000 people across the UK.The average house price for the combined mortgage guarantee and equity loan schemes was found to be £191,295 - significantly below the national average, which the government cited as evidence that it is engaged in responsible lending.However, Martin Beck, senior economic adviser to the EY Item Club, said that if the number of high loan-to-value mortgages were to grow at the rate desired by the government, the Bank of England's Financial Policy Committee may recommend the curtailment of the scheme, take action around capital requirements or recommend caps on loan-to-value ratios.Just over £1 billion of mortgages were secured in the first six months of the second phase of Help to Buy, involving a guarantee of just £153 million."Exhausting the pot would imply about 14 per cent of all housing transactions making use of the scheme. In comparison, in the first six months of the scheme, it only represented 1.2 per cent of all housing transactions," he said.He added that properties purchased using Help to Buy 2 would have to rise ten-fold from the average level of the first six months if the government's target were to be reached.Concerns have grown around the Help to Buy scheme in recent months, with some claiming it is helping to create a housing bubble. However, the government claimed its figures show the initiative is least concentrated in areas which have the highest growth. Uptake in areas such as London is relatively small, and 94 per cent of completions under the scheme are outside London. 

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