U.K. Business Secretary Vince Cable repeated criticisms of a Treasury plan to help people with minimal savings buy houses, saying it needs more work before it’s implemented.
The first phase of the Help to Buy program -- interest-free loans for buyers of newly built homes -- began in April and has already helped to stoke the strongest housing market since the financial crisis. In the second phase, starting in January, guarantees meant to spur 130 billion pounds ($206 billion) of mortgage lending will be available for homes costing as much as 600,000 pounds, helping those with deposits of 5 percent to access low-cost loans.
While Cable has repeatedly raised doubts about the second phase, fellow senior members of his Liberal Democrat party defended it yesterday. Both Deputy Prime Minister Nick Clegg and Chief Secretary to the Treasury Danny Alexander denied it would lead to a bubble.
“We must not now settle for a short-term spurt of growth fueled by an old-fashioned property boom and bankers rediscovering their mojo,” Cable told the party’s conference today in Glasgow, Scotland. “We’ve seen it all before and there are already amber lights flashing, warning us of history repeating itself.”
Speaking to BBC Radio 4 afterward, Cable said his criticisms were confined to the mortgage-guarantee phase of Help to Buy. “The preparatory work hasn’t yet been completed,” he said, adding that the implementation would have to take account of the state of the economy and the housing market.
Later, in a question-and-answer session with Liberal Democrat activists, Cable defended his comments, telling them that “I said it because somebody in the government had to say something.”
He argued that phase two of Help to Buy might have “a role in places like Ulster, where the housing market is deeply depressed. Cash from the Funding for Lending Scheme, which provides money for banks at low interest rates to lend on, should perhaps “be restricted to small-business lending,” rather than used for mortgages, Cable said.
Alexander defended Help to Buy yesterday, telling a meeting of activists at the conference that it’s a matter of social justice to help people who couldn’t manage to save money to buy houses.
“We’re a million miles away from a housing boom,” he said. “It’s a good idea and we’re not going to back off from it.”
Clegg also supported the plan. He told the BBC yesterday that “mortgage approvals are about half of what there were at the peak.” While “there are parts of the housing market particularly in London and central London that are booming,” that isn’t the case in other parts of the country, he said.
Clegg said the Bank of England and the government have tools to prevent a housing bubble.
Cable said in his question-and-answer session that “the Bank of England is much better equipped than it was in the last boom,” with Governor Mark Carney now enjoying powers his predecessor, Mervyn King, did not.
Recent property-market data have suggested prices are increasing. A report by Acadametrics on Sept. 13 showed that U.K. house prices rose to a record last month. In London, prices have risen 40 percent from their trough in April 2009, compared with 16 percent nationally, the report, compiled with LSL Property Services Plc showed, while eight of the 10 regions tracked recorded price gains.
Property-website operator Rightmove Plc increased its 2013 U.K. house-price growth forecast today, saying prices will increase 6 percent instead of the 4 percent it previously estimated.
Cable joked in his conference speech about his reputation as a prophet of doom. “David Cameron has called me a Jeremiah,” he said. “But you’ll recall from your reading of the Old Testament that Jeremiah was right.”