bubbles

The phrase 'housing bubble' has haunted the UK government's Help-to-Buy scheme almost since its inception. Yet this week one of the UK's leading economic forecasters has come out against the prevailing attitude, saying fears of a bubble are pure 'hysteria'.

The EY Item club, formerly the Ernst & Young Item Club, believes that the housing market will enjoy a bounce, rather than undergo a boom as a result of the scheme. Shrugging off negative housing market speculation, the group is forecasting that the economy will grow by 1.4% this year, 2.4% next year and 2.6% in 2015.

It also predicts there will be over one million housing transactions this year, with house prices up 3.5% on last year.

The forecaster argues that the economy will be helped by the housing market recovery as we see a boost in spending on household items and professional services such as conveyancing.

Peter Spencer, chief economic adviser to the group, said: "Despite recent criticism of these initiatives, the chances of seeing another housing market bubble are extremely slim.

"Buy-to-let and other cash-rich buyers have had the market to themselves until this year, but Help to Buy will help level the playing field for first-time buyers and low-equity households."

It would be fair to say that the government's Help-to-Buy scheme has had several detractors - yesterday, in sharp contrast to the EY Item Club's predictions,  Lloyds warned that if the supply of new homes in the UK was not increased we risk a bubble in house prices.

Meanwhile, RBS revealed that as soon as the Help to Buy scheme became available, demand for their services shot up: the banking group reported booking 5,000 mortgage appointments within the first three hours.

(image:pedrosek/FlickrCC)

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