1.Fifth (on a roll now!) in my series of threads looking at recent UK economic performance, from a national accounts viewpoint. History, not forecasts. Today – housing, Help to Buy, the FPC & the economic growth boom in 2014.
2.The backdrop – the financial crisis and the huge fall in housing transactions, driven first by a crash in house price expectations followed by a massive tightening of credit standards by mortgage lenders. 
3.Several policies were implemented in response, but by far the biggest impact on post-crisis economic growth via the housing market came via the announcement of the Help to Buy policy package in March 2013.
4. House price growth accelerated almost instantly, driven by a surge in market expectations. After the guarantee came into effect in October 2013, there was an immediate move in First Time Buyer credit conditions pushing house price growth higher still.
5.Important to note that falling interest rates continued to play a role in the background, but the steadiness with which they declined over the period suggests that they can’t account for the sudden surge in price growth.
6.Housing transactions took off immediately, triggering a surge in the housing investment & housing-sectors’ business investment contributions to growth went from a combined average 0.17%y/y during 2010-2012 to 0.44% in 2013 & 2014.
7. It is less clear that HTB boosted household consumption. For one, consumption growth had picked up already in 2012. There’s historically a tight & hotly debated correlation between UK house prices & household spending, so I suspect there'll be more debate on this point.
8.Throughout the second half of 2013 and the whole of 2014, UK economic growth accelerated and by the end of 2014, the UK was the fastest growing G7 economy. Household spending was the foundation, but housing & associated investment helped push growth to the top.
9.However – the housing market was reigned in in 2014 by a combination of the introduction of new mortgage market regulations (MMR) & the Financial Policy Committee’s imposition of a cap on the share of lending at loan to income ratios above 4.5.
10.The combination had an impact. Transactions and price growth peaked during 2014 as did the surge in housing-related investment growth.
11.What of mortgage debt? Here, the story is more complex. The level of UK mortgage debt in 2018 relative to disposable income is still below where it was back in 2013 & in fact fell in the two years after the introduction of Help to Buy.
12. How was this possible, given the surge in prices and transactions? An increase in repayments that matched the growth in new mortgage lending in the immediate aftermath of HTB. (Note: I’ve yet to bottom out why this happened – suggestions on a post card!)
13.While the mortgage guarantee scheme closed as planned at the end of 2016, the shared equity scheme has continued. The contribution to economic growth from housing investment itself has remained pretty steady throughout. [End]
