Chancellor George Osborne today denied accusations that his new mortgage indemnity scheme will simply inflate house prices and fuel another boom.
Speaking to the Treasury select committee on the Budget, Osborne said the aim of the MIG is to boost housebuilding and make it easier for people to buy or move home.
At the Budget last week, Osborne unveiled a shared equity scheme and a mortgage indemnity guarantee scheme, both branded as Help to Buy. He predicted the combined impact would be an extra 190,000 mortgages a year.
Under the MIG, set to launch in 2014 for three years, the Government will offer a guarantee of up to 15 per cent of the purchase price, with the borrower putting down a deposit of between 5 and 15 per cent.
At the TSC hearing today, chair Andrew Tyrie asked Osborne: “Are you not concerned we are ploughing money into the boom and bust housing system?”
TSC member Andy Love said: “There is more than a little concern that the effect of the scheme will just push up house prices, how do you respond?”
Earlier today the Office of Budget Responsibility told MPs it expects the immediate effect of the MIG will push up house prices. But Osborne rejected suggestions that the scheme is likely to inflate house prices or create a bubble.
He said: “It is a temporary, time-limited intervention in the housing market that addresses a market failure.
“In normal times you would not undertake an intervention like this but the number of first-time buyers has halved, the price of deposits have trebled and housebuilding is nothing like the rate we would want in normal times. It is perfectly appropriate in these circumstances to intervene but we have to be clear that you can turn off the tap.”
Osborne also said he has given the financial policy committee a “lock” to shut down the scheme and he does not expect it to last more than three years.
He also repeated claims that the “clear intention” of the MIG is to help people buy or move home but refused to rule out people buying second homes, indicating he wants to avoid complexity. He highlighted cases where someone moving home, such as a divorcee, may have two mortgages and he does not want to exclude them.