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Bank given wider Help to Buy role

Source BBC News@

For sale signsHelp to Buy offers guarantees for people who otherwise might not be able to afford a mortgage

Chancellor George Osborne has asked the Bank of England to take a bigger role in ensuring his Help to Buy housing scheme does not fuel a property boom.

The Bank's Financial Policy Committee (FPC) will make annual reviews of the scheme, starting next September.

The committee had been due to make an assessment of Help to Buy only after its first three years of operation.

But the recent recovery in parts of the housing market has raised questions about the impact of the scheme.

BBC business editor Robert Peston said the chancellor had responded to criticism that his Help to Buy scheme could cause a dangerous housing market boom.


"Earlier this week, the FPC put out a statement saying that it sees signs of recovery in the housing market, that these did not yet look like over-heating, but that it would be vigilant and pre-empt and prevent a recurrence of the bubble that formed in the boom years before the 2007-8 crash."

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A Treasury source said that the Chancellor would implement whatever recommendations were made by the FPC”

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Help to Buy was originally launched to help buyers of new properties. A second, potentially much bigger phase of the scheme is due to begin in January to assist buyers who might otherwise be unable to afford a down payment on a home.

The scheme provides taxpayer insurance for up to 15% of a mortgage on houses worth up to £600,000, thus allowing banks to provide up to 95% mortgages at very little risk to themselves, our editor says.

Up to £12bn of government guarantees will be on offer to help people get mortgages.

But since the second stage of the plan was announced in March, the housing market, particularly in London, has improved.

Business Minister Vince Cable is among those to have expressed his concerns about Help to Buy.

'Broadening recovery'

Critics have said that a lowering of the £600,000 ceiling would help lessen the potential upward pressure on property prices.

The Treasury said in a statement: "Now that the FPC have set out their latest assessment of the housing market... we are setting out more detail on how its role will work.

"The FPC's assessment this week - in line with that of the chancellor and the [Bank of England] governor - is that recent developments in the housing market represent a broadening recovery from low levels of activity, but that we must remain vigilant as that recovery progresses.

"The chancellor has asked the FPC to work with him every September, starting next year, to assess the ongoing impact of the Help to Buy scheme. Following that annual assessment, he has proposed that the FPC advise him on whether the key parameters of the scheme - the price cap and the fees charged to lenders - remain appropriate."

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