ECONOMIC NEWS 26 MARCH 2015

The headline event relating to housing this month was the Government’s Budget announcement that it would introduce a Help to Buy ISA in autumn 2015. This comes on top of the Government’s Help to Buy scheme started in April 2013, which allows people to purchase a home with just a five per cent deposit, and in addition to the discounted Starter Homes scheme, which launched in December 2014.

First-time buyers aged over 16 years will now get Government help to raise their deposit. Savers can start their Help to Buy ISA with a lump-sum of up to £1,000 and then add up to £200 per month. For every £200 saved the Government will add £50 or 25 per cent up to a maximum bonus of £3,000. Anyone who has never owned a home before can open an account, which means a couple buying together can claim up to £6,000 towards their first property. Money in one of the new accounts can be accessed at any time, but the Government payment will only be added when the money is used for a deposit on a home. The minimum savings to qualify for the bonus are £1,600 but no minimum monthly investment has been stipulated. Mortgage lenders and brokers believe the new scheme may cut the time it takes first-time buyers to save for their deposit by about a year.

Following the Budget, official figures from the Office of National Statistics (ONS) showed that Consumer Price Index (CPI) inflation fell from 0.3 per cent in January to zero per cent in February, the lowest since records began in 1988. The drop was sharper than many analysts expected, boosted by lower prices for food and computer goods. The CPI only became the main measure for inflation in 2010; previously the Retail Price Index (RPI) was used, which included housing costs and mortgage payments. The RPI fell to 1 per cent in February from 1.1 per cent in January.

The Bank of England has previously said that falling oil prices and cuts in energy bills could result in negative inflation in March. Many economists believe that there is little risk of a long and damaging period of deflation because robust employment growth and a pick-up in wages will maintain consumer demand. ONS figures for UK retail sales in February seem to bear this out, showing an increase of 0.7 per cent over January.

The ONS further reported that average house prices may be falling across the UK. Based on mortgage completions, prices fell by 0.2 per cent between December last year and January 2015, the first monthly fall since March 2014. Annual house price inflation fell from 9.8 per cent in December to 8.4 per cent in January, while in the capital the January rate was calculated at 13 per cent, compared to a peak of 20.1 per cent in May 2014.