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Carney may call for the end of Help to Buy sooner than you think

11 December 2013

Mark Carney’s speech to the Economics Club of New York yesterday made clear that very low interest rates now ‘put a premium on macroprudential policies’. Translation: he’s not going to hike interest rates soon, but he wants us to know that there are other levers he can pull to keep the UK economy on track. What are those levers?

First, Funding for Lending. Two weeks ago Mark Carney announced that the scheme – which offers banks cheap funding if they increase lending to the real economy – would no longer be available for mortgage lending. It will only be open for loans to companies. That’s a lot more than just technical tweaking: excluding mortgages was the Bank’s first move to tighten lending conditions for more than six years.

The return of very buoyant mortgage lending and rapidly rising house prices has not gone unnoticed on Threadneedle Street. Today’s house price survey from the Royal Institute of Chartered Surveyors will have rung even more alarm bells. Over the next three months, surveyors expect house prices to increase at their fastest pace in 14 years.

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So lever number two is calling time on the Help to Buy scheme. Help to Buy is fuelling house price rises by subsidising the cost of mortgage debt. The scheme is not restricted to first-time buyers and the Government’s claim that the scheme is aimed at people unable to afford the deposit for an ordinary family home sits awkwardly with the upper price limit of £600,000. The average house price in the UK is £250,000. Only in a handful of London boroughs is the average price of a property more than £600,000.

When George Osborne first launched Help to Buy back in October he said that he wanted to work with the Bank of England every year to assess the ongoing suitability of Help to Buy. So we all thought that the first such assessment was due 12 months after this date – in September 2014.

But what’s this? In his letter to my Treasury Select Committee on 22 November Mark Carney said that whilst the Financial Policy Committee (FPC) does not have a ‘veto’ on the Help to Buy Scheme, the FPC could make recommendations on it at any time – the FPC is not constrained by any Government timetable in providing this advice. Indeed, he made this point twice in the letter – giving the appearance of snubbing his nose at the Chancellor’s desired year of grace for Help to Buy.

Today’s house price forecasts should redouble Mark Carney’s insistence that his hands need to be left free to recommend a calling of time on Help to Buy ahead of the Chancellor’s preferred date of September 2014.

Those who cast aspersions on Carney’s independence – because of his perceived closeness to Osborne – should think again.

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Show comments
  • CortUK

    Cue a bunch of ministers who say:

    “It is absolutely impossible to identify asset bubbles until they pop, but I can tell you we are absolutely not in a bubble now”.

  • MirthaTidville

    Lets hope you are right and Carney is able to operate independently. If this is so, then it will be good for the economy. His predecessor was useless, out of touch and totally in hock to whoever was the occupier of No 11.His slow down of Funding for lending should have been one of `sudden death` which would have caused house price rises to stall over a very short period of time, which is surely what he is trying to acheive.

    The fact that he didnt do it straight away indicates that he may still be on a Treasury leash, just a bit longer than Merv`s was.. Time will tell

  • itdoesntaddup

    Carney made this point some time ago. If you actually bother to look at the annualised rate of increase of house prices in recent months, you will see it has already reached 15% on the Halifax Index, and almost as much on the Nationwide. That is serious bubble territory already. It’s the high implicit LTVs from HtB that are doing it, so they are the obvious line of attack, perhaps via degrading their regulatory risk rating – effectively countering the government guarantee that taxpayers will pick up the tab for falling house prices later.

    • Daniel Maris

      The generation that saw a huge capital gain on their home is now dying off and leaving large pots of money to children who can now afford to put down huge deposits, thus also fuelling the rise. Similarly the super-rich spivs from places like Russia and China are coming into London and surrounding areas, and driving up prices. Lasting the population growth caused by mass immigraiton, which is hugely outpacing our ability to build is contributing greatly to price pressure.

      It’s a toxic mix, largely down to government policy.

      • itdoesntaddup

        Do the maths. Increases in house prices are diminished by IHT, and then divided among siblings. They would secure a better property were that not so – or they have to borrow more to maintain the standard.

      • Mynydd

        Immigration has nothing to do with our ability to build. We have the ability to build over 300,000 houses a year, yet the figures for this year will be half that amount. When you are working part time for low wages, there is no way you can buy even the lowest cost house. The older generation may have made a huge capital gain on their home, but by the time they have paid for old age care there is nothing left for their children.

        • Noa

          Without the mass immigration of the last 16 years we would have had ample affordable housing for a stable population.
          New labour’s treacherous policy of ‘rubbing the Right’d nose in diversity’ has resulted in the unproductive waste of a major national asset and the financial destruction of our childrens’ future.

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