Help-to-Buy is like an iceberg, cancel it now

Second, those figures for the first six months are deeply misleading. Completing a mortgage takes time. It is no surprise then that only four mortgages were completed under the scheme in October, its first month of operation. Since then, usage has been on a strong upward trend. 818 mortgage guarantee loans were completed in December and 2,657 in March. The March figure was a little over 3pc of mortgage completions. It could well go higher in future months.

Third, banks are increasing the availability of riskier mortgages to compete with the government scheme. So the visible number of loans through the policy is beside the point. Banks reported a surge in the availability of mortgages requiring a 10pc deposit or less in the first quarter of the year.

Help-to-Buy is not the only game in town. Too many people chasing too few houses, low interest rates and rising consumer confidence are also driving house prices up. All that applies in spades in London, along with an influx of foreign cash in the swankier areas.

Government subsidies cannot be held accountable for every move in house prices. But Help-to-Buy is not helping.

The policy means today’s buyers may find it easier to get a mortgage. But stimulating demand in a supply constrained market just results in higher prices, making it yet more difficult for the next wave of buyers to get a toehold on the housing ladder for themselves.

London has the worst house price pressure. That is unlikely to be heavily down to Help-to-Buy. But prices outside London are now rising quickly too. For many regions that represents a thawing market not a bubble, but the direction of travel is clear.

There are some signs that the housing market may be slowing a little as tighter mortgage rules bed in. Mortgage approvals have fallen. Quarterly growth on the Nationwide numbers have slowed a little too. But house price inflation is still running at a 10pc annualised pace, 6-7 times average pay growth.

Recent action by Lloyds and RBS could also take a little of the heat out of the London market. They have introduced restrictions on the £500,000 plus mortgage segment. The threat of central bank action on the housing market may have encouraged banks to move first.

But those actions could well be marginal. The typical UK house price is a bit shy of £200,000, well below the level that the new restrictions come in at. Much of the activity at the top of the London market, where the restrictions could bite, is cash based.

There is no need to do an emergency stop by clamping down savagely on mortgage lending. Mortgage debt is rising only very gradually right now and house prices outside London are much further below their bubble time peak than the capital’s super hot market.

But equally, there is no sense in artificially stimulating the market. UK house price inflation just hit 11pc according to the Nationwide and the Bank of England still has the pedal to the metal with interest rates at record lows. The risks are plain.

House prices are eye-wateringly expensive. There is a real crisis brewing in the UK. But the solution for that cannot be to subsidise demand. That will not solve the underlying problem. Instead, it may even make it worse

Would curtailing the government’s subsidy scheme do much good? On the face of it, no. Reducing the maximum property value it applies to is one option. But less than 3pc of HTB mortgages were on properties worth more than £350,000. Remember the iceberg point though. The impression the scheme gives matters more than the direct impact. Curtailing the scheme – in any way – could send a worthwhile signal.

Rob Wood is UK economist at Berenberg Bank and former economist at the Bank of England

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