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Osborne Homebuyer Plan May Fuel Prices, U.K. Lawmakers Say

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April 20 (Bloomberg) -- Chancellor of the Exchequer George Osborne’s program to give taxpayer support to U.K. homebuyers is “unconvincing” and risks inflating house prices and exposing the Treasury to losses, a panel of lawmakers said.

Parliament’s cross-party Treasury Committee also questioned the decision to put the program, under which the government will make interest-free loans to homebuyers and guarantee mortgages, in the hands of the Bank of England’s Financial Policy Committee.

“The mortgage guarantee scheme makes the government an active player in the mortgage market and the committee is concerned that the Treasury now has a financial interest in maintaining house prices to limit losses to the taxpayer,” said the report, published in London today. “The committee finds the chancellor’s assertion that increased demand for home ownership and rising prices, resulting from the mortgage guarantee scheme, will trigger a corresponding supply response, unconvincing, at least for the short term.”

The lack of clarity over whether people will be able to use government support to help buy second homes suggests the policy was not properly thought through before Osborne announced it in his budget on March 20, the committee said. It also warned that the decision to ask the FPC to decide if the program should continue after 2017 could distract the committee from its main role of pursuing financial stability.

Questions

“The government’s Help to Buy scheme is very much a work in progress and it may have a number of unintended consequences,” committee chairman, Conservative lawmaker Andrew Tyrie, said in an e-mailed statement. “Without further detail it is not possible to estimate its effects. The questions the committee has asked the government need answering.”

Under the initiative, Osborne pledged 3.5 billion pounds ($5.3 billion) to help buyers of new homes with loans of as much as 20 percent of the property’s value. He also announced a 130 billion-pound mortgage guarantee plan to encourage banks to lend to people with limited cash for a deposit. Critics say the program will lead to riskier lending, fuel demand for second homes and drive up house prices.

“We are in a period of real weakness in the housing market so the risk of a housing bubble is close to non-existent,” Osborne told reporters in Washington yesterday. “It’s not about returning to the unsustainable boom of 2006-07; it’s about returning the housing market much more akin to its pre-boom state.”

The Treasury Committee also highlighted confusion between the Treasury and the Department for Energy and Climate Change over which department is in charge of U.K. energy policy.

The uncertainty “must not be allowed to undermine business and investor confidence” in the face of the threat to U.K. businesses caused by high energy costs, the report said.

To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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