Cut Help to Buy to burst housing bubble, OECD urges Bank of England

'Overvalued' house prices 'must be dampened'

Economics Editor

The Bank of England has been urged by the OECD to dampen the booming UK property market by watering down the Government’s mortgage subsidies.

In its latest report, the multilateral organisation noted yesterday that British house prices look overvalued relative to average earnings and rents and said the time has come for the regulator to take corrective action.

“Monetary policy tightening should be accompanied by timely prudential measures to address the risks of excessive house price inflation,” it said.

The OECD added that this action might include “tighter access” to the Help to Buy scheme, which offers state guarantees for mortgages worth up to £600,000, alongside higher capital requirements for lenders and maximum loan-to-value ratios for mortgages.

Many have called for the £600,000 cap on Help to Buy mortgage eligibility to be significantly reduced.

Last week, the Bank’s deputy Governor, Sir Jon Cunliffe, said house prices, which are rising at an annual rate of more than 10 per cent, are “the brightest light” on the regulator’s dashboard and said the Bank was “ready to act” if necessary to head off the danger of another damaging property bubble.

Stricter rules on mortgage lending were introduced last month and the Bank’s Financial Policy Committee could take further action to curb the availability of credit at its meeting next month. George Osborne and other ministers have sought to play down suggestions of a housing bubble and also the impact of the Help to Buy scheme on prices.

But asked yesterday in Brussels about the OECD’s recommendations the Chancellor said the matter lay in the hands of the independent regulator. “The Bank of England has the tools and independence to do what it feels it needs to do to help to contribute to building that resilient economy,” he said.

The OECD also yesterday upped its forecast for economic growth in the UK for this year and next. It now expects GDP growth of 3.2 per cent over 2014, up from 2.4 per cent in November. For 2015, the latest prediction is 2.7 per cent growth, up from 2.5 per cent last time. The latest snapshot of the UK’s services sector yesterday showed the fastest pace of growth this year. The Markit/Cips purchasing managers’ index rose to 58.7 in April, up from 57.6 the previous month. That helped to send sterling higher to around $1.69, the highest since 2008.

“All the signs are that Britain is booming,” said Michael Saunders of Citi. “The need for the current ultra-loose policy stance is receding rapidly, in our view. Indeed, the current policy stance may well – if sustained for much longer – start to create a dangerous bubble mentality in housing and other assets.”

The mortgage guarantee element of Help to Buy was introduced in October 2013 and is due to end in December 2016.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
Highs and lows of the cast's careers since 2004
New Articles
i100... with this review
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam