27 Sep 2013

Broken Ladder: Osborne acts to prevent housing ‘bubble’

Chancellor George Osborne gives new powers to the Bank of England to monitor the government’s help to buy scheme following criticism that it risks creating a housing boom and bust.

George Osborne has asked the bank’s financial policy committee (FPC) to report annually on how help to buy is working, starting in September 2014.

The Treasury said the FPC would also be expected to “advise him on whether the key parameters of the scheme – the price cap and the fees charged to lenders – remain appropriate”.

Help to buy is due to last for three years, but “if a future government proposes to extend the scheme, the FPC will have to give its agreement”.

The chancellor’s move coincides with new figures from Nationwide building society, which show that house prices have risen at their fastest annual pace in more than three years in September.

For the first time since 2007, all 13 UK regions have seen annual house price growth, at an average rate of 5 per cent and 10 per cent in London.

As part of its Broken Ladder series, Channel 4 News has been looking at how the government tackles two key issues in the housing market: availability and affordability.

‘Very significant’

Joshua Miller, senior economist at the Royal Institution of Chartered Surveyors, told Channel 4 News the changes unveiled by the Treasury were “very significant”.

He added: “Help to buy is a Treasury scheme, but the chancellor has now essentially said they will feed the FPC’s input into their discussions. They have a say in the way help to buy is managed.

“If the FPC have a say in the running of this scheme, they can tweak various parameters. They can either slow down or heat up the housing market.”

Mr Miller has previously suggested that a 5 per cent cap on house price growth could be needed to prevent a future boom.

Help to buy is designed to help people without a big deposit to buy a home. The first phase started in April and is for new-build homes of up to £600,000. The second phase begins in January 2014 and is for all homes of up to £600,000.


The scheme is controversial because the taxpayer bears some of the risk. If a home is repossessed, the government takes a hit: how much depends on what the home is subsequently sold for.

It has already been widely credited with spurring a surge in home sales and driving up prices, leading to fears that it could lead to the housing market over-heating.

Business Secretary Vince Cable has said he is concerned about the development of “serious housing inflationary pressures” and has questioned whether the second phase of help to buy “should come into effect”.

The FPC said this week that it would “closely monitor developments in the housing market” and would be “vigilant to emerging vulnerabilities”.

The Council of Mortgage Lenders, which represents banks, building societies and other lenders, welcomed the Treasury’s announcement that help to buy would be reviewed annually.


Director General Paul Smee said: “We now have an indication of how and when the Bank of England will determine whether the scheme needs to change during its three-year proposed lifespan, and this annual review will be a key deciding factor in that.

“We hope that there will also soon be clarity on issues such as the government’s exit strategy at the end of the scheme.”