Fathom Consulting suggested under normal conditions, the government scheme would lead house prices to inflate by 10%. However, the promotion of 95% loan-to-value mortgages indicated a looser market, meaning the figure could be more like 20%.
Using recent house price index figures, this means the average first-time buyer house price could reach over £150,000 and the average house price come close to £300,000 in two years.
In its report, Fathom described Help to Buy as a reckless scheme which had the potential to increase house prices and hike up household debt to record levels.
It told clients: “Had we been asked to design a policy that would guarantee maximum damage to the UK’s long-term growth prospects and its fragile credit rating, this would be it.”
The scheme allows a homebuyer to take out a mortgage with a deposit of 5%, as the government underwrites 14.25% of the property and the lender guarantees a further 0.75%.
The Monetary Policy Committee was unlikely to react to another housing price bubble by tightening monetary policy, according to the model, which drew on the MPC’s actions during the boom.
Help to Buy could drive up house prices without significantly increasing supply, Office of Budget Responsibility economist Steve Nickell told the committee.