House prices in SW6 are racing upwards. So why is the government stimulating it further? Tim Harrison reports

In the last six months the prices of homes in SW6 have shot up 15%, say estate agents. And yet the government is pinning its hopes of economic revival on stimulating the market even more. The tactic is receiving a very mixed reception.

“I don’t see that the budget will do much at all for property in central London… particularly in Fulham!” That was the assessment of Mark O’Neill from Knight Frank’s office in New Kings Road, SW6 (020 7751 2400) after the implications of home-ownership changes announced recently by George Osborne had had a chance to sink in.

In a nutshell, the Chancellor launched two schemes to boost home-ownership. One, which begins immediately, is for buyers of new-build homes who have saved a five per cent deposit. The government will lend up to 20% of the value, so they will only need a 75% mortgage.

If your dream home is a more typical terraced Victorian house, a second scheme may help. It underwrites part of your loan, and also requires buyers to save up a five per cent deposit. The trouble is, it doesn’t start until January next year, leading some to question whether it may skew sales in the intervening months.

But where are all the sites in Fulham for this new building? And if sites are found, and new homes built, will they really be in the bracket of first-timers?

“There is hardly any room left for new-builds, and what is built is likely to be so expensive that you could not really class them as being for classic first-time buyers struggling to raise a deposit,” said Mark.

Fulham, like other prime London areas, really isn’t comparable to other parts of the UK, where there may indeed be land begging to be built on, and where values haven’t soared so high that first-time buyers can only stare in amazement at the asking prices in estate agents’ windows.

Knight Frank partner Anne Soutry reckons SW6 prices have risen 15% since November 2012– a phenomenal increase against the current economic backdrop.

The reason? Simple supply and demand, accentuated by the drift of buyers out of Kensington & Chelsea.

“The number of buyers moving from K&C to Fulham has increased from 39% to 50% in the past 12 months,” said Anne. “Fulham still appears to offer good value in comparison to more central locations.”

The Chancellor’s equity loan scheme for new-build houses and flats aims to help 74,000 people buy a starter home over the next three years.

Buyers put down a 5% deposit, the government finds 20% and a bank will advance a 75% mortgage. The buyer can repay the government during the term of the loan, or when they sell. The loan is interest-free for five years, after which interest is charged at 1.75% in the sixth year, before rising in line with inflation plus 1% each year after that. There is a £3.5billion pot of cash for the scheme.

The second part is the mortgage guarantee, and it applies to new and existing homes. The buyer will need a 5% deposit, then the government guarantees the next 20%. Mr Osborne won’t actually pay it (unlike the equity loan), but he promises to step in and cover the losses of up to 20% of the value of the house should it be sold for less than the mortgaged sum – an unlikely event in SW6, unless the bubble bursts. The government has extended the pot for this from £1bn to £12bn.

Both deals apply to house purchases of up to £600,000, and buyers must live in the property, effectively barring buy-to-let investors from applying.

James Mannix, head of Knight Frank Residential Investments, said: “This is clearly another small push for the sector and a sign that the government remains committed to promoting build-to-let.”

Knight Frank believes that the only way the scheme will take off nationally is if the planning system is further streamlined, and more land is released for development.

If 74,000 new buyers do indeed benefit in the next three years, it will only lift housing transactions by 3%.

The Office for Budget Responsibility is so sceptical that it has revised down its forecast for housing transactions in the coming years, and now expects a 15% rise in transactions in 2013-14, down from the December forecast of 18%.

However, Knight Frank gives a small cheer for the fact that the ceiling for helping buyers is £600,000, meaning that some suburban commuter zones of London could benefit.