Outgoing governor of the Bank of England Sir Mervyn King issues warning over 'Help to Buy' scheme

 

The outgoing governor of the Bank of England has warned that George Osborne's plan to boost the housing market is "too close for comfort" to a general state guarantee for mortgages.

Sir Mervyn King said there was "no place in the long run" for the Chancellor's Help to Buy scheme, which will see the Government will guarantee up to 15% of a mortgage on properties worth up to £600,000.

The scheme, which starts in January 2014, is due to run for three years and Sir Mervyn warned it must not be allowed to become permanent.

In an interview which will be broadcast on Sky News' Murnaghan programme today, Sir Mervyn said: "I'm sure that there is no place in the long run for a scheme of this kind.

"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.

"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.

"So, we mustn't let this scheme turn into a permanent scheme. Now when is the right time to terminate it will depend on economic conditions at the time."

Sir Mervyn said the economy was in a "modest recovery" but "we certainly can't be satisfied with it".

He said: "We will need to do more to use up the spare capacity, and to get back to a healthy, growing economy. But we are in a recovery period now, I think, yes."

Sir Mervyn's concerns about Help to Buy echo those of the Treasury Select Committee, which reported on the Budget last month.

The committee warned the Government will come under "immense" pressure to extend Help to Buy in three years time.

It said: "The unintended and unwelcome outcome could well be that a scheme designed to deal with a supposedly temporary problem in the UK housing market becomes a permanent feature of the UK housing market."

Help to Buy consists of two elements, an "equity loan" scheme and the mortgage guarantee.

Under the equity loan new or existing homeowners will need to raise a deposit of 5% of the value of the property they want to buy, but can borrow up to a further 20% from the Government on an interest-free basis. The biggest loan available will be £120,000.

PA

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs General

Recruitment Genius: Financial Controller

£40000 - £45000 per annum: Recruitment Genius: A fantastic opening has arisen ...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Recruitment Genius: Medical & Economic Writer / Consultant

£23000 - £70000 per annum: Recruitment Genius: This is an opportunity for a Me...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower