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| George Osborne denies that Help to Buy scheme risks new housing bubble | George Osborne denies that Help to Buy scheme risks new housing bubble |
| (2 days later) | |
| George Osborne has strongly defended his budget policy aimed at boosting Britain's struggling housing market after his own economic watchdog warned that subsidies for mortgages would drive up property prices. | George Osborne has strongly defended his budget policy aimed at boosting Britain's struggling housing market after his own economic watchdog warned that subsidies for mortgages would drive up property prices. |
| The chancellor insisted the Treasury's Help to Buy scheme would encourage housebuilding by countering fears that a lack of affordable finance would leave new homes unsold. | The chancellor insisted the Treasury's Help to Buy scheme would encourage housebuilding by countering fears that a lack of affordable finance would leave new homes unsold. |
| Giving evidence to backbench MPs, Osborne said potential buyers were being asked for deposits they couldn't afford and that there was no risk of a housing bubble. | Giving evidence to backbench MPs, Osborne said potential buyers were being asked for deposits they couldn't afford and that there was no risk of a housing bubble. |
| He used last week's budget to announce a twin-track scheme for the mortgage market. People buying new homes up to a value of £600,000 can borrow 20% of the value of their property interest-free for five years, in return for the government taking a stake in the equity. He also introduced a new "mortgage guarantee" to help more people get a home loan without the need for a prohibitively large deposit. | He used last week's budget to announce a twin-track scheme for the mortgage market. People buying new homes up to a value of £600,000 can borrow 20% of the value of their property interest-free for five years, in return for the government taking a stake in the equity. He also introduced a new "mortgage guarantee" to help more people get a home loan without the need for a prohibitively large deposit. |
| But the chancellor's plan was given a frosty reception by the Office for Budget Responsibility, which provides independent economic and financial forecasts for the Treasury and gave evidence to the committee hours before Osborne's appearance. | But the chancellor's plan was given a frosty reception by the Office for Budget Responsibility, which provides independent economic and financial forecasts for the Treasury and gave evidence to the committee hours before Osborne's appearance. |
| Two of its three members – the chairman, Robert Chote, and the former Bank of England policymaker Steve Nickell – said Help to Buy would push up prices and have little impact on demand. | Two of its three members – the chairman, Robert Chote, and the former Bank of England policymaker Steve Nickell – said Help to Buy would push up prices and have little impact on demand. |
| Nickell said: "The key is: is it just going to drive up house prices? By and large, in the short run the answer to that is yes. But in the medium term will the increased house prices stimulate more housebuilding, and our general answer to that would probably be: a bit. But the historical evidence suggests not very much." | Nickell said: "The key is: is it just going to drive up house prices? By and large, in the short run the answer to that is yes. But in the medium term will the increased house prices stimulate more housebuilding, and our general answer to that would probably be: a bit. But the historical evidence suggests not very much." |
| Chote said strict planning laws limited housebuilders' ability to build more homes, so the Help to Buy scheme was more likely to push up prices than increase the supply of new housing. | Chote said strict planning laws limited housebuilders' ability to build more homes, so the Help to Buy scheme was more likely to push up prices than increase the supply of new housing. |
| "If you were to note the fact that the planning system remains an important reason why the supply of new housing is relatively inelastic [and] the need of housebuilders for working capital, I suspect that more of it would have shown up in prices than in quantities," he said. | "If you were to note the fact that the planning system remains an important reason why the supply of new housing is relatively inelastic [and] the need of housebuilders for working capital, I suspect that more of it would have shown up in prices than in quantities," he said. |
| The OBR chairman said his organisation had been unable to make a detailed assessment of the impact of the scheme because ministers had not provided enough information on how it would work. | The OBR chairman said his organisation had been unable to make a detailed assessment of the impact of the scheme because ministers had not provided enough information on how it would work. |
| At his appearance, Osborne was asked by the committee chairman, Andrew Tyrie, whether he was not concerned that "we are just ploughing money back into the boom-bust property cycle?" | At his appearance, Osborne was asked by the committee chairman, Andrew Tyrie, whether he was not concerned that "we are just ploughing money back into the boom-bust property cycle?" |
| The chancellor replied: "I don't detect that we are in the middle of a housing boom. I think we are in a very unusual situation after the financial crisis. Families are being priced out of the housing market and that is neither economically right nor socially fair." | The chancellor replied: "I don't detect that we are in the middle of a housing boom. I think we are in a very unusual situation after the financial crisis. Families are being priced out of the housing market and that is neither economically right nor socially fair." |
| Dismissing the idea that the UK could enter another housing bubble, the chancellor added: "If you look at the UK housing market at the moment, the number of first-time buyers has halved, the amount required for a deposit has trebled, the deposit required from first-time buyers has doubled as a percentage of their income." | Dismissing the idea that the UK could enter another housing bubble, the chancellor added: "If you look at the UK housing market at the moment, the number of first-time buyers has halved, the amount required for a deposit has trebled, the deposit required from first-time buyers has doubled as a percentage of their income." |
| The chancellor also refused to rule out breaking up Royal Bank of Scotland – 83% owned by the taxpayer – into a good and bad bank in an attempt to increase lending. | The chancellor also refused to rule out breaking up Royal Bank of Scotland – 83% owned by the taxpayer – into a good and bad bank in an attempt to increase lending. |
| The idea of splitting off all the toxic assets of RBS into a separate institution so that the rest of the bank would have a clean balance sheet has been looked at repeatedly by the Treasury in recent years. Osborne said the good bank/bad bank option could not be delivered overnight but the leading civil servant at the Treasury, Sir Nicholas Macpherson, told the committee there might be a time when officials recommended a breakup. | The idea of splitting off all the toxic assets of RBS into a separate institution so that the rest of the bank would have a clean balance sheet has been looked at repeatedly by the Treasury in recent years. Osborne said the good bank/bad bank option could not be delivered overnight but the leading civil servant at the Treasury, Sir Nicholas Macpherson, told the committee there might be a time when officials recommended a breakup. |
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