Chancellor of the Exchequer George Osborne will introduce annual checks with the Bank of England over his Help-to-Buy program as he responds to mounting concerns that the plan may fuel excessive house-price increases.
Osborne and the BOE’s Financial Policy Committee will reassess the program, which helps buyers purchase homes with as little as a 5 percent deposit, every September starting next year, the Treasury in London said. The FPC will advise Osborne on whether key parameters, such as the price cap and the fee charged to lenders, remain appropriate.
The chancellor’s plan has drawn criticism from the International Monetary Fund and Business Secretary Vince Cable who say it may spark a property bubble. The first phase, interest-free loans for buyers of newly built homes, began in April and has already contributed to the strongest housing market since the financial crisis. Data today showed home values rose the most in more than a year this month and the FPC said this week it’s ready to act if any risks to stability emerge.
“Now that the FPC have set out their latest assessment of the housing market, the final such assessment before the launch of the Help to Buy scheme, we are setting out more detail on how its role will work,” the Treasury said. The FPC, BOE Governor Mark Carney and Osborne agree that “developments in the housing market represent a broadening recovery from low levels of activity, but that we must remain vigilant.”
Guarantees meant to spur 130 billion pounds ($209 billion) of mortgage lending will be available for all homes costing as much as 600,000 pounds from January.
The FPC, led by Carney, will also have to give its agreement if a future government decides to extend the program beyond its current three-year lifespan, the Treasury said.
“We welcome the opportunity for the FPC to assess each year the effect of the Help to Buy scheme on the sustainable evolution of the housing market and to advise on whether the price cap and fees charged to lenders are appropriate,” the central bank said in an e-mailed statement.
The FPC said on Sept. 25 said that while property activity remains below its historic average, it “judged that it should closely monitor developments in the housing market and banks’ underwriting standards.” The panel also said it would be “vigilant to potential emerging vulnerabilities.”
Nationwide Building Society said today that house prices advanced 0.9 percent this month. On the year, values climbed 5 percent, the biggest annual increase since July 2010, and all 13 U.K. regions tracked by Nationwide saw gains in the third quarter, the first time that’s happened since 2007.
Halifax said this month that home prices rose for a seventh month in August and will probably continue to increase through the rest of the year. The Royal Institution of Chartered Surveyors has urged the FPC to set a cap on rises.
Adding official aid to an already improving market “is not a risk worth taking” and the chancellor’s move to give more power to the BOE over the plan may not be enough, said Rob Wood, an economist at Berenberg Bank in London.
“Considered in isolation, this change looks like closing the stable door after the horse has bolted,” said Wood, a former BOE official. “The scheme cannot be reviewed until next September and reducing the 600,000-pound cap is unlikely to be a big deal for the bulk of the country outside London.”
With Britain in the midst of its political party conference season less than two years before the next general election, rival lawmakers are pledging to ease planning curbs and build more homes as rising values puts home ownership beyond the reach of young Britons.
The opposition Labour Party’s lead over Prime Minister David Cameron’s Conservative Party has narrowed to single digits over the past year, with the government benefiting in part from a strengthening economy.