Help to Buy mortgage reforms could cool housing market, says Bank of England governor Mark Carney

Governor targets government scheme after prices soar

People looking to take out a new mortgage might have to prove they have the financial resources to cope with paying “much higher interest rates”, under plans being considered by the Bank of England.

The Bank’s Governor, Mark Carney, signalled he is looking at adopting a range of new measures to cool the housing market including an “affordability test” and advising the Government to rein in its Help to Buy scheme.

Under Help to Buy the Government underwrites mortgage borrowing above 80 per cent of the property’s value – allowing people to take out mortgages with a deposit of as little as 5 per cent.

But some economists believe that the scheme is fuelling an unsustainable housing bubble which could leave many home-owners unable to meet mortgage payments when interest rates rise to more normal levels.

In an interview on Sky News on Sunday, Mr Carney said the Bank was well aware of the risks of house-price inflation – with new figures today suggesting asking prices have risen by 8.9 per cent in a year.

“We could do more,” he said. “We could take steps around affordability to test whether or not individuals can repay mortgages at much higher interest rates.

“We could limit amounts of certain types of mortgages that banks could undertake, we could provide advice – the Chancellor has asked us if we would provide advice on changing the terms of Help to Buy – all those things are possibilities.”

But Mr Carney said that, ultimately, the “deep, deep structural problems” in the property market – with demand far outstripping supply – could only be addressed through a major expansion of the housing stock.

“There are not sufficient houses built in the UK,” he said. Equating the situation to his home country of Canada he added: “There are half as many people in Canada as in the UK, [yet] twice as many houses are built every year in Canada as in the UK, which just gives you a sense of the orders of magnitude of the supply problems.”

With housing prices now rising at a rate of 10 per cent a year across the country, Mr Carney said the housing market now represented the biggest threat to the recovery.

He expressed particular concern about the return of large mortgages – more than four times a borrower’s salary – which were associated with the financial crash of 2008 and which were, he said, “creeping up” again.

“We don’t want to build up another big debt overhang that is going to hurt individuals and is very much going to slow the economy in the medium term,” he said.

“The biggest risk to financial stability, and therefore to the durability of the expansion – those risks centre in the housing market and that’s why we are focused on that.”

He said that while the Chancellor George Osborne’s Help to Buy scheme was still a “relatively small programme”, it had the potential to grow and “could change attitudes in other parts of the mortgage market”.

Labour’s shadow Chancellor Ed Balls said that Mr Osborne must heed the Governor’s warning, otherwise the Bank could be forced to put up interest rates “prematurely”. “The Chancellor cannot wash his hands of what’s happening in the housing market,” he said. “You can’t deal with the cost-of-living crisis without building many more homes.”

But David Cameron said the Bank had “all the powers they need” to prevent a new asset price-bubble developing.

“We have given to the Bank of England the duty to make sure that bubbles are dealt with in our economy and they have all the powers they need to do that, but he is absolutely right when he says we need to build more houses in Britain,” said the Prime Minister.

“The building of houses is going up. If you talk to any housing developer at the moment or builder, they will tell you that the Help to Buy scheme has been hugely helpful at bringing forward more development.”

Meanwhile Lord Lawson, a former Chancellor during Margaret Thatcher’s time, said Mr Carney had been given the responsibility to advise the Government over the scheme and should make a decision.

He added he would like to see Help to Buy phased back or brought to an end, plus a 0.25 per cent rise in interest rates before the end of 2014.

Lord Lawson said: “I think [Mr Carney] is absolutely right to express his concern but George Osborne has very sensibly charged the Bank of England with the responsibility of telling him when Help to Buy should be either phased back or ended altogether.

“So really the ball is in Mark Carney’s and the Bank of England’s court.”

Arts and Entertainment
arts + entsWith one of the best comic roles around, it's no wonder she rarely bothers with films
News
people
News
i100
News
Davis says: 'My career has been about filling a niche - there were fewer short actors and fewer roles – but now I'm being offered all kinds of things'
PeopleWarwick Davis on Ricky Gervais, Harry Potter and his perfect role
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Voices
A Russian hunter at the Medved bear-hunting lodge in Siberia
Save the tigerWildlife charities turn to those who kill animals to help save them
Sport
Frank Lampard will pass Billy Wright and equal Bobby Charton’s caps tally of 106 caps against
sportFormer Chelsea midfielder in Etihad stopgap before New York contract
News
i100
Sport
Usain Bolt of Jamaica smiles and shakes hands with a competitor after Jamaica won their first heat in the men's 4x100m relay
sport
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
Arts and Entertainment
The first film introduced Daniel Radcliffe to our screens, pictured here as he prepares to board the train to Hogwarts for the first time.
booksHow reading Harry Potter helps children grow up to be gay-friendly
Life and Style
A small bag of the drug Ecstasy
Health
News
i100
Life and Style
Floral-print swim shorts, £26, by Topman, topman.com; sunglasses, £215, by Paul Smith, mpaulsmith.co.uk
FashionBag yourself the perfect pair
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
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

(Senior) IT Support Engineer - 1st-3rd Line Support

£40000 per annum: Ashdown Group: A successful IT service provider that has bee...

Wind Farm Civil Design Engineer

£55000 - £65000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Principal Marine Mechanical Engineer

£60000 - £70000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Principle Geotechnical Engineer

£55000 - £65000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Day In a Page

Save the Tiger: Meet the hunters tasked with protecting Russia's rare Amur tiger

Hunters protect Russia's rare Amur tiger

In an unusual move, wildlife charities have enlisted those who kill animals to help save them. Oliver Poole travels to Siberia to investigate
Transfers: How has your club fared in summer sales?

How has your club fared in summer sales?

Who have bagged the bargain buys and who have landed the giant turkeys
Warwick Davis: The British actor on Ricky Gervais, how the Harry Potter set became his office, and why he'd like to play a spy

'I'm a realist; I know how hard this business is'

Warwick Davis on Ricky Gervais, Harry Potter and his perfect role
The best swim shorts for men: Bag yourself the perfect pair and make a splash this summer

The best swim shorts for men

Bag yourself the perfect pair and make a splash this summer
Has Ukip’s Glastonbury branch really been possessed by the devil?

Has Ukip’s Glastonbury branch really been possessed by the devil?

Meet the couple blamed for bringing Lucifer into local politics
Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup