The Bank of England and government appear to be at loggerheads over the housing market, giving Help to Buy with one hand and taking away mortgages with the other, Mark Garnier has warned.
The Conservative MP for Wyre Forest and Treasury select committee member said measures to clamp down on mortgage lending announced by the financial policy committee last week are “confusing”, given ongoing government support for housing.
The reason the committee was established as independent from government, said Mr Garnier, was to protect against “temptation from politicians who are guided by electoral cycles”.
He said: “This is a far safer way to run monetary policy and was clear in the launch of the FPC and the Help to Buy proposals.
“I have always maintained that when the FPC starts to intervene, that is when we will get confused as to how monetary policy is carried out.”
The Office for National Statistics figures showed that UK house prices rose by 9.9 per cent in the 12 months to April 2014, the highest yearly increase in UK property prices since May 2010. This created pressure to quell fears of a house price bubble, culminating in last week’s FPC announcement of unprecedented measures to curb mortgage lending.
Its recommendations included that lenders should limit loan-to-income multiples to no more than four-and-a-half, while no more than 15 per cent of a lender’s book can account for such high LTI multiples. Last week, Bank of England member Andy Haldane suggested that rates should rise sooner than later.
But earlier this week, figures released by the Bank showed the MMR was having a cooling effect, as mortgage lending fell for the fourth month in a row with a total of 99,805 approvals in May, down 5.6 per cent from 105,748 a year earlier.
Last year, the government launched Help to Buy and revealed that the mortgage guarantee scheme supported around 1.3 per cent of total mortgage lending, predominately supporting house purchases outside London and the South East, where house prices are rising at a modest rate.
Adviser view
Ray Boulger, senior technical director at London-based John Charcol, said: “Most people who took out a mortgage prior to the credit crunch will have started off paying more than current rates, and those who have borrowed recently will have had their mortgage stress-tested at around 7 per cent.
“Most people should be able to take the first few rate rises in their stride, even if they have to cut back on non-essential spending.”
