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U.K.’s Cable Sees Risk Help-to-Buy Could Inflate Housing

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July 29 (Bloomberg) -- U.K. Business Secretary Vince Cable said there’s a risk the government’s program to boost housing demand might lead to a bubble unless it’s properly designed.

The Help-to-Buy plan to provide mortgage guarantees “could be a problem, it could inflate the market, but if it’s properly designed it could be a useful addition,” Cable said on BBC television yesterday. “We mustn’t risk returning to the problems of the last decade, when housing got out of control.”

Cable’s comments follows similar warnings from the International Monetary Fund and former Bank of England Governor Mervyn King about the risks associated with the Help-to-Buy program, under which banks will be encouraged to lend to riskier home buyers.

Chancellor of the Exchequer George Osborne said earlier this month that he couldn’t see the conditions under which Help-to-Buy would create a bubble given the current financial climate. Cable is a member of the Liberal Democrats, the junior partner in the coalition headed by Osborne’s Conservatives.

There are signs that the property market is recovering. Hometrack said today that average house prices in England and Wales rose 0.3 percent in July from June and were up 1.3 percent from a year earlier. Mortgage approvals probably rose the highest in more than five years in June, economists said in a survey before data from the Bank of England due at 9:30 a.m.

‘Sensible Balance’

Asked about comments he made to the Financial Times last week calling Bank of England policy makers a “capital Taliban” for imposing burdens on banks that are restricting lending to business, Cable said that exporters and manufacturers are struggling to obtain loans. It’s important to have a “sensible balance” between the need for tighter regulation and the need to provide credit, he said.

“There was the prospect a year ago that the Nationwide and potentially other building societies would get into business lending,” Cable told the BBC. “The Nationwide is having to withdraw from that because of these tough capital requirements.”

Cable expressed “cautious optimism” about the state of the economy after official figures last week showed gross domestic product rose 0.6 percent in the second quarter, with all main industries expanding for the first time in three years.

“There are some good things happening in manufacturing,” he said. “We’ve got to keep that going for a period of years.”

To contact the reporter on this story: Eddie Buckle in London at ebuckle@bloomberg.net

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