* UK house prices set to rise 4.0% in 2013, 5.5% in 2014
* London house prices to rise 6.0% this year, 6.1% next
* Market watchers divided on continuing "Help to Buy"
By Jonathan Cable
LONDON, Aug 28 British house prices are set to
rise at their fastest pace in three years in 2013, outstripping
inflation and raising concerns that government action may lead
to a new price bubble, a Reuters poll found on Wednesday.
A government-backed "Help To Buy" scheme means borrowers can
buy a home with a deposit of just 5 percent, and a narrow
majority of analysts judged this stimulus should cease as the
housing market is already gathering momentum.
The poll of market watchers, taken in the past week, found
eight in favour of continuing the government's initiative but 11
wanting to scrap it.
"The housing market was slowly recovering already, it has
been good for the sector, but in the long term it is throwing
money at something that is not the solution," said Mark Hughes,
co-head of research at Panmure Gordon.
"There is a danger we are creating the next bubble and not
learning from what's happened previously."
House prices tripled during a decade-long boom to 2007 but
fell sharply at the start of the financial crisis. Most
respondents do not see them reaching pre-crash levels for some
Still, according to medians from the poll prices will rise
on average 4.0 percent this year and 5.5 percent next, a sharp
upwards revision from a May poll that predicted rises of 2.0
percent and 2.4 percent respectively.
In London prices will rise 6.0 percent this year and 6.1
percent next as the capital continues to draw in rich overseas
investors battling for a limited supply of property.
"The UK housing market is recovering strongly on improving
demand. The economic recovery is helping boost consumer
confidence and reviving demand from first-time buyers and
home-movers," said Melanie Bowler at Moody's Analytics.
"The London housing market will continue to outperform the
rest of the country, bolstered by continued strong domestic and
Britain's economy is picking up speed after essentially
flatlining for two years, but the Bank of England said it
intended to keep interest rates at a record low of 0.5 percent
until late 2016. This would be a boon for mortgage borrowers,
although some could be over-stretched if and when rates
Bank Governor Mark Carney did not convince financial markets
with the announcement, which he is expected to defend in a
speech later on Wednesday, and investors are betting that
monetary policy tightening will begin at least a year earlier.
Britain's consumer price inflation was running at 2.8
percent year-on-year in July, and a poll on Wednesday showed
people expected it to average 2.6 percent in the year ahead.
The first phase of the government's Help to Buy offers
buyers of new-build properties an interest-free five-year loan
for 20 percent of the property's value, kicked off in April.
But the second phase offers 12 billion pounds of guarantees
to back mortgages to buyers who lack large deposits and does not
come into force until January.
"You are helping people to buy things they would be
otherwise unable to afford to, we've seen how that kind of
interference ends. The market will overshoot," said Henry Pryor,
an independent housing analyst.
"Help to Buy, when the second phase rolls out in January
will have a demonstrable effect if the government is still
reckless enough to go through with it."
Despite the scheme, running in parallel with the year-old
Funding For Lending programme, mortgage approvals dipped to
57,667 in June, down from May's 3-1/2 year high of 58,071, but
medians from the poll suggest they will rise to 65,000 in six
months and reach 70,000 in a year.
Home improvement and building supplies group Grafton said on
Wednesday recovery in Britain, its main market, was likely to be
"What the 'Help To Buy' has done, it's just given the
housing market a little bit of a shot in the arm and just made
things feel better," Grafton's Chief Executive Gavin Slark said.
British housebuilders such as Persimmon and Bovis
Homes have also said in recent weeks that the government support
has boosted sales.
Housebuilders have been among the top performers on the
British stock index this year, up over 40 percent.
(Polling by Rahul Karunakar and Sarbani Haldar; editing by