Osborne to hand Bank powers to curtail Help to Buy

The Bank of England has confirmed it will be given the power to assess each year the effect of the government’s controversial Help to Buy scheme on the housing market, with reports indicating it will effectively be able to put the brakes on the scheme if it prompts an unsustainable boom.

The regulator confirmed it will be able to intervene if there are signs Help to Buy is creating a housing boom by advising whether the price cap and fees charged to lenders are appropriate.

The Financial Policy Committee, the macro-prudential regulator that sits within the Bank of England, issued a statement earlier this week stating that it had discussed the bouyancy of the housing market at its latest meeting.

Article continues after advert

It said: “The committee judged that it should closely monitor developments in the housing market and banks’ underwriting standards. The committee would be vigilant to potential emerging vulnerabilities.

“The committee noted that if risks to the stability of the financial system were to emerge from the housing market, both it and the microprudential regulators had a range of tools available to address those risks.

According to sister newspaper the Financial Times, the FPC will be able to recommend that Mr Osborne reduces the cap on properties eligible under the scheme, currently set at £600,000, to reduce its availability in the capital’s booming property market.

It could also recommend that the Treasury increases the fees it charges lenders for the mortgage guarantees, pushing up the price of loans.

It is understood that Mr Osborne put forward the new powers to Mark Carney, governor of the Bank of England, earlier this month after Vince Cable, business secretary, said Help to Buy could lead to “an old-fashioned property boom”.

It was earlier this year that the government unveiled the Help to Buy scheme, which provides lenders with the option to purchase a government guarantee that compensates them for a portion of their losses in the event of foreclosure. The government will charge a commercial fee for the provision of this guarantee.

The guarantee offer is augmented by a government equity loan offer that will leverage a prospective homebuyer’s 5 per cent deposit into a 25 per cent deposit, when buying a new build property.

The first phase of the scheme, launched earlier this year, provides equity loans for buyers looking to buy a new home, in order to enable more people to buy their own properties. The next stage, which will be introduced in January 2014, will help buyers acquire older style properties with a deposit of just 5 per cent.

Under the terms of the scheme, homebuyers who qualify can acquire properties of up to £600,000.

Click here to read FTAdviser’s Guide to Help to Buy and to earn CPD.