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Bank of England to review Help to Buy to stop housing bubble

The Bank of England is to be given the remit of monitoring the Help to Buy scheme and to recommend adjustments if there are signs that it is creating a house price bubble.

The financial policy committee will conduct annual reviews of the scheme every September and will be able to recommend modifications such as lowering the £600,000 cap or raising the fees paid by the lenders for the guarantee.

The Treasury told the BBC: “The Chancellor has asked the FPC to work with him every September, starting next year, to assess the ongoing impact of the Help to Buy scheme. Following that annual assessment, he has proposed that the FPC advise him on whether the key parameters of the scheme – the price cap and the fees charged to lenders remain appropriate.”

A BoE spokesman says: ”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.”

Help to Buy was the flagship policy of the March Budget and aims to boost the availability of 95 per cent loan to value mortgages but has come under fire over fears it could create a housing bubble.

The scheme works in two parts; the first part came into effect in April as a shared equity scheme for new build homes. The second part, a £130bn mortgage indemnity scheme, which was first revealed by Mortgage Strategy in February, will come into force on January 1 for all properties worth up to £600,000.

Legal & General Mortgage Club managing director Ben Thompson says: ”There is no doubt that Help to Buy has helped to boost mortgage market after five years of little or no growth.  Whilst it is sensible for the Bank of England to review the scheme to ensure it isn’t causing drastic increases in house prices,  we think talk of a housing bubble  is slightly premature.

“Whilst the latest Nationwide House Price Index showed growth of 10% in London, in the North of England growth was only 0.2%.  These significant variations suggest the market is growing at different speeds across the UK and it is therefore too simplistic to suggest  a bubble is developing nationwide.”

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