• Sir Mervyn King attacks Osborne’s help to buy scheme

    19th May 2013 | News | Claire
  • Sir Mervyn King, the outgoing governor of the Bank of England, has warned that the Government’s plan to revive the housing market should not become permanent.

    He warned that there “was no place in the long run” for George Osborne’s Help to Buy scheme, which will guarantee up to 15 per cent of mortgages on properties worth up to £600,000 from next January.

    The Bank’s governor fears that the scheme could leave taxpayers exposed to billions of pounds worth of private mortgage debt.

    Sir Mervyn said: “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.

    “So, we mustn’t let this scheme turn into a permanent scheme.”

    He added: “When is the right time to terminate it will depend on economic conditions at the time.”

    Bank governors seldom criticise Government policy so publicly. Sir Mervyn is set to be replaced by the Canadian Mark Carney later this summer.

    The Treasury said Help to Buy would “support home buyers and home building”.

    A spokesman said: “The mortgage guarantee scheme will provide much needed help for people who can’t afford a big deposit to get a mortgage.”

    Help to Buy, which is expected to last for three years, will ensure new or existing homeowners need to raise a deposit of just 5 per cent of the value of a property they want to buy.

    They can also borrow up to a further 20 per cent of the property’s value from the Government interest-free. The largest loan available under Help to Buy will be £120,000.

    Last month the Commons’ Treasury Select Committee warned that the Government will come under “immense” pressure to extend Help to Buy when it is set to expire in 2017.

    “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.”