Bank of England governor Sir Mervyn King has warned the Government its Help to Buy scheme could fuel a US -style housing boom and must not be made permanent.
Speaking to Sky News yesterday, King said the plan to guarantee mortgages with 5 per cent deposits is “too close to comfort” to the US system that saw failed lenders Fannie Mae and Freddie Mac guarantee mortgages.
The Treasury select committee has warned the Government could face large losses from Help to Buy and it could simply push up house prices.
Chancellor George Osborne has rejected claims the scheme could fuel a housing boom by pointing out it last for only three years and the Bank of England has a “lock” on approving any extension.
King said: “I am sure there is no place in the long run for a scheme of this kind. This scheme is a little too close for comfort to a general scheme to guarantee mortgages.
“We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market.
“We do not want what the United States have, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position.
“So, we must not let this scheme turn into a permanent scheme. When is the right time to terminate it will depend on economic conditions at the time.”
King also said the public should not “demonise” individual bankers as the financial crisis was the result of systemic regulatory failure rather than individual errors.
His comments on the guarantee element of the Government’s Help to Buy scheme echo the concerns of industry voices, including former Council of Mortgage Lenders director general Michael Coogan and Building Societies Association chairman David Webster.
A former senior executive at US government-backed lenders Fannie Mae and Freddie Mac has also previously warned the Government to approach its Help to Buy scheme with its “eyes wide open” to ensure taxpayers are not left with significant losses.