Are chancellor and governor as one on housing?

House building in Derbyshire

Here is something I may or may not have mentioned before (brain like sieve, can't remember).

The chancellor believes he got the thumbs up (in private) for his ambitious mortgage-guarantee scheme, Help to Buy, from the newish Canadian governor of the Bank of England, Mark Carney.

More pertinently, George Osborne would not have pushed ahead with the plan, designed to support the provision of £130bn of new mortgages over three years, in the absence of an understanding that Carney is friend not foe on this one (or so Osborne's allies told me when he unveiled the scheme, months ago).

"Why should anyone give a stuff?" you may muse.

Well, with the UK's housing market recovering strongly in parts (London booming, North East England and Scotland still sinking), there are some who believe Osborne should think again about protecting homebuyers and banks from three quarters of the first 20% of losses on mortgages up to £570,000.

There are fears that an un-amended Help to Buy would pump up a new housing bubble, or perhaps a series of regional mini-bubbles, and will do little to stimulate the supply of new houses (although to be pedantic for a second, what we are talking up here is Help to Buy 2, launching in the new year, as opposed to Help to Buy 1, which already exists and has ushered in bumper times for house builders).

To be clear, Osborne ain't turning back on this before its official launch in January. Or so he said to me when I interviewed him last week.

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You might be surprised how rare it is for the residents of SW1 and EC2 to sing from the same ideological hymn sheet”

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Which is why I was intrigued to be told by a colleague of Carney that the governor doesn't believe he has (in fact) underwritten the chancellor's housing market support scheme at all - and that perhaps the biggest challenge facing Carney is how to signal his distance to the world, without embarrassing and alienating his patron, George Osborne.

Now to be clear, we are in the realms here both of practical policy - how to stimulate the more general economic recovery through reviving the housing market - and of fiscal religion.

Recall please what I've mentioned a few times, that the official Treasury - the putative technocrats, not the special advisers - have a horror of Help to Buy, largely because they see it as official support, to the tune of a £12bn contingent liability for potential losses, for a market that is far too prone to bubbles to require any such de facto subsidies (and see here for more on this).

So if the civil servants don't like Help to Buy, who on earth gave birth to it? Well it was the political Treasury, the special advisers, or Spads.

Which doesn't mean that it's bad economics. It is certainly plausible - and in keeping with tradition - that the career bureaucrats of the Treasury are being too fastidiously conservative.

Mark Carney Mark Carney

But it would be nerve-wracking for Osborne to press ahead with perhaps his most ambitious economic initiative in the face of scepticism from the entire technocratic class, whether housed in SW1 (HM Treasury) or in EC2 (the Bank) - and you might be surprised how rare it is for the residents of SW1 and EC2 to sing from the same ideological hymn sheet.

Against that background, I will (in one of my more obsessive guises) be making a close textual analysis of the first statement from the Bank of England's Financial Policy Committee since Carney's accession - which is due on Wednesday.

If it raises a note of concern about an incipient housing bubble, that will be seen as a warning to Osborne to exercise due care in his stimulus for housing transactions. And if the Bank of England comes over all trappist about conditions in the homes market, questions would then be raised about whether the Bank is as self-confidently impartial as it is supposed to be.

More than any Bank governor of my lifetime, Carney is a brilliant politician. He will need all his political skills to navigate around these rocks.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 13.

    The help to buy scheme is absolute madness. All it serves to do is to inflate already grossly inflated property prices and put money in the pockets of estate agents and already wealthy buy to letters.
    Still if it creates the illusion of economic growth,fools the public and allows politicians to spout false positive soundbytes I can see why it exists.

  • rate this

    Comment number 12.

    We don't need technocrats to realise that increasing demand while supply is constrained will lead to a bubble! What Osborne should be doing is providing funds for more social housing to increase supply and make housing more affordable. Frankly, given how expensive housing has become I'm amazed that no party has taken the issue seriously. If anything, there must be many votes to be won?

  • rate this

    Comment number 11.

    Why help to buy? Why not offer a real alternative for those who would prefer to rent? The money for this scheme could be used to invest in social housing at reasonable rent to help those who can never aspire to owning a house in the current market. Whatever happened to the Tories' commitment to "choice"? It seems to have died a death, or not have existed, in the housing sector.

  • rate this

    Comment number 10.

    Help to buy must be the most idiotic idea anyone has come up with. It's a fudge to fix a sector that is broken from the bottom up by overly complicated and draconian planning and building rules. In the early 20th century the common man was able to build a house will minimal interference from the state, what a surprise there wasn't a housing shortage then.

  • rate this

    Comment number 9.

    we have the perfect disaster coming....a rubbish government .. a rubbish opposition in waiting....low interest rates.....high house prices...smaller deposits required....mass immigration still happening.....the idiots dont learn from history...

  • rate this

    Comment number 8.

    Nothing succeeds like success and heck this bubble is being given a kick start,

    Have we really fallen to this level where the economy is treated as bubbles in the making?

    Arguably it wouldn't matter - as long as the whole nation moves as one.
    But it is not. London is being pumped up.

    All on nothing but fanciful thinking.

    And Carney and Osborne will get plaudits.

    - - For what exactly? - -

  • rate this

    Comment number 7.

    Once again houses are seen as the financial driver by those in power.
    Not a mention of investing in SME's who make real things. And employ people with real jobs. The banksters are happier shifting bits of paper which do not a real value. Rather than helping society to have the opportunity to have a reasonable living.

  • rate this

    Comment number 6.

    how is this helping first time buyers
    to me it's just another buy to lend scheme

  • rate this

    Comment number 5.

    HTB 2 is a disaster in the making. Even the Americans are currently considering winding down Fannie and Freddie to make the US housing market mainly a private affair. WHy are we going in the opposite direction??
    I can understand why Osborne felt the need for HTB 1, but why is it a good idea to subsidise EXISTING houses?

  • rate this

    Comment number 4.

    This is a nonsense story


    "Vigilant" (as use by BoE) = they want the opposite.

    There was (in 2008) a "coup d'état" by the banks who now run the country and everything is subservient to their wishes. The people and state are total slaves to the banks.

    We must change this and do so rapidly!

    Bursting the housing bubble will create a banking crash in 2016 or so and THEY KNOW THIS.

  • rate this

    Comment number 3.

    The problem is if the market is "recovering" because of Help to Buy - which is in effect more lending - how can this be seen as a real recovery? It's just more of the same. The issues that need dealing with go years back - the regulation of lending: See more

  • rate this

    Comment number 2.

    RP: 'Which doesn't mean that it's bad economics. It is certainly plausible - and in keeping with tradition - that the career bureaucrats of the Treasury are being too fastidiously conservative.'
    But it IS just like another political party that is this week putting sticking plasters on things without thinking or proposing doing anything about the underlying cause of the problem.

  • rate this

    Comment number 1.

    ". . . how to stimulate the more general economic recovery through reviving the housing market. . . "

    you mean like America did?


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