Bank of England can curb Help to Buy
The Chancellor has responded to criticism that his Help to Buy scheme, due to launch in January, could cause a dangerous housing market boom, by giving powers to the Bank of England to constrain its impact.
The scheme provides taxpayer insurance for up to 15% of a mortgage on houses worth up to £600,000, thus allowing banks to provide up to 95% mortgages at very little risk to themselves.
The aim is to help those with small savings, who are unable to provide a big deposit, to buy a house.
But with house prices rising in London at an annual rate of almost 10%, and also rising relatively fast in the rest of the south east, there have been fears that a housing market bubble is being stoked up.
So the Treasury is giving new powers to the Bank of England's Financial Policy Committee (FPC) to review the scheme every September.
With these new powers, if the FPC concluded that the housing market was overheating, it could recommend that the fees charged to banks for the state insurance should be increased, which would cut demand for the insurance.
Alternatively, the FPC could propose that the ceiling of £600,000 on eligible properties should be lowered, so that any boom in more expensive southern properties could be stymied.
A Treasury source said that the Chancellor would implement whatever recommendations were made by the FPC in these circumstances.
He added that the Treasury had to an extent followed the model of powers held by the Bank of Canada, where Mark Carney, current governor of the Bank of England was previously governor.
Earlier this week, the FPC put out a statement saying that it sees signs of recovery in the housing market, that these did not yet look like over-heating, but that it would be vigilant and pre-empt and prevent a recurrence of the bubble that formed in the boom years before the 2007-8 crash.
The Help to Buy scheme is being introduced for an initial three years, when it will be scrapped, if that is what the Bank of England recommends.
When I interviewed the Chancellor earlier this month, he said he was determined to launch the scheme, pointing out that house prices and sales were flat in many parts of the UK.