The U.K government should review its Help to Buy mortgage-guarantee program in light of soaring home prices in London and the surrounding region, Business Secretary Vince Cable said.
“We certainly need to look at that again,” Cable, a member of the minority Liberal Democrats in David Cameron’s Conservative-led coalition, told BBC television’s “Andrew Marr Show” yesterday. “It was conceived in very different circumstances.”
A U.K. house-price index compiled by the Royal Institution of Chartered Surveyors rose to the highest in more than a decade last month, aided by the Help to Buy program, as supply failed to keep up with demand. RICS said last week prices in London will rise 11 percent next year, compared with 8 percent nationally, as demand increases.
“There is a raging housing boom in London and the southeast,” Cable said. He said ratings company Standard & Poor’s “is expressing quite serious worries” about Help to Buy.
S&P said in a statement last week that the program “could increase macroprudential risks in the economy by lowering households’ buffers against any future house price volatility.”
Speaking to lawmakers Dec. 12, Conservative Chancellor of the Exchequer George Osborne denied there was a bubble in the U.K. housing market and said he would listen to any concerns voiced by the Bank of England.
The central bank took action last month to restrain the strengthening property market by ending incentives for mortgage lending under its credit-boosting Funding for Lending Scheme. The government brought forward the introduction of the Help to Buy program in October, enabling purchasers to take out a loan with a down payment of as little as 5 percent on homes with a value of as much as 600,000 pounds ($980,000).
Even as real-estate prices rise, Bank of England Governor Mark Carney reiterated to lawmakers last week that Britain’s recovery will need to be sustained before the economy is strong enough to withstand higher interest rates.
Cable told the BBC that “the danger of raising interest rates is that you hit those parts of the country which are not yet fully recovered and you push up the exchange rate; that hits manufacturing, we don’t want that.”
Yet, if the central bank keeps its key rate at a record-low 0.5 percent, “this boom that’s taking place in house prices gets out of control and the only people who can live in parts of London are foreigners and bankers, and we don’t want that either,” Cable said.