Bank of England split over impact of Help to Buy scheme on property values as house prices rise again

By Matt West


Bank of England policymakers appeared to be split over the impact of the Help to Buy scheme on house prices today, as one member of the Bank's interest rate setting committee and its incoming deputy governor disagreed over whether the scheme would lead to a house price bubble.

In written evidence to Parliament's Treasury Select Committee Martin Weale, an external member of the Monetary Policy Committee said Help to Buy could force up house prices and warned against it becoming ‘a permanent feature of our economy’.

Dr Weale said house prices were already rising 'appreciably more rapidly' than might have been predicted adding there was a risk Help to Buy would increase upwards pressure by adding to demand while supply of new homes remained weak.

Split: Martin Weale and Sir Jon Cunliffe appear to be split on the impact of Help to Buy on the property market

Split: Martin Weale and Sir Jon Cunliffe appear to be split on the impact of Help to Buy on the property market

He said:‘The extra liquidity offered by the Help to Buy scheme may encourage house-building, but I share the previous governor's (Lord King's) view that it should not become a permanent feature of our economy.


‘While reports on the first stage of the scheme suggest that it has had a substantial influence, with 2,000 buyers a month benefiting, this number is small compared with the overall number of housing transactions.

‘It was quite possible that demand-side indicators will continue to show further buoyancy. While supply of new houses is also likely to increase, for current levels of loan approvals, house prices are rising appreciably more rapidly than would have been predicted on the basis of the relationship between the two for the period before the crisis.

‘There is obviously a risk that, if the mortgage guarantee element of Help to Buy is not priced satisfactorily, it will add to demand while supply is weak, leading to increased pressure on prices.'

Dr Weale added: ‘Rising house prices may make people feel cheerful and more prosperous, thereby supporting household spending. But rising house prices impose a burden on those who do not yet own houses but aspire to in the future. Like government borrowing, rising house prices can crowd out productive investment.

‘We are also very aware that developments in the housing markets can pose risks to financial stability. This risk is high if lending is taking place on the basis of poor security or with little margin to spare should prices turn down.’

Rising: House prices have risen 3.8 per cent in the last year to an average of £247,000, official figures showed today

Rising: House prices have risen 3.8 per cent in the last year to an average of £247,000, official figures showed today

His comments come as official figures showed house prices rose 3.8 per cent year-on-year in September to an average of £247,000.

They are also in opposition to the views of incoming deputy governor of the Bank of England Sir Jon Cunliffe who, appearing before the same committee of MPs yesterday, dismissed fears the Help to Buy initiative would lead to a housing bubble and said the central bank had the necessary tools to calm the market.

The Treasury mandarin, who succeeds the departing Paul Tucker, did however admit the Bank would need to monitor lending in order to prevent a return to lending boom that helped contribute to the financial crash five years ago.


Despite concerns over rapidly rising house prices he insisted price rises were ‘patchy’ with some areas seeing far lower valuations than others.

Economists, the Business Secretary Vince Cable and Labour have all warned Help to Buy risks inflating a housing bubble that could lead to another economic crisis.

They were joined by the chief executive of State-backed Lloyds Banking Group Antonio Horta-Osório yesterday who said the Help to Buy scheme risked creating an asset bubble unless there were reforms to boost the supply of housing.

‘From where I am now it doesn’t look like we are in a bubble,” Sir Jon told the Treasury select committee. ‘Is it something that needs to be watched very carefully? Yes. Does the UK have a history of housing booms? Most certainly.’

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