Three former chancellors of the exchequer have urged George Osborne to rethink his Help to Buy programme, as the OECD called on the government to scale back its flagship mortgage support scheme.
Lord Lawson, Lord Lamont and Alistair Darling said the second phase of the scheme, which guarantees very high loan-to-value mortgages, had the potential to inflate a new housing bubble.
Mr Osborne faces a growing cross-party consensus that Help to Buy 2 should be scaled back. Vince Cable, the Lib Dem business secretary, is among those to have called on the chancellor to reconsider because of a “raging housing boom”.
The OECD, the influential economic think-tank, this week said the government should consider “tighter access” to Help to Buy to address the risk of “excessive” house price inflation. UK house prices grew 9.1 per cent in the past year, according to official statistics.
Lord Lamont, a Conservative chancellor in the early 1990s, told the Financial Times that Mr Osborne was “well aware of the potential problems” with Help to Buy.
But he said he was “concerned” about the scheme because it was not in the public interest for house prices to become even more expensive or for mortgage levels to return to their 2007 peak.
“What will happen is that demand can be increased quickly, through measures like Help to Buy, but supply can only be increased slowly,” he said. “My concern is that it will become even harder for young people to buy a home.”
Alistair Darling, chancellor in the last Labour government, told the FT that successive administrations had presided over “bubble after bubble” which all burst eventually.
“We keep repeating the same mistakes,” he said. “Supply of housing is the biggest single thing. Unless supply can be increased substantially we will exacerbate that situation with schemes like Help to Buy.”
The mortgage guarantee gives government backing for buyers with a 5 per cent deposit on newly built and existing homes worth up to £600,000, and aims to boost lending to those with small deposits.
Lord Lawson, who ran the Treasury under Margaret Thatcher, called on Mr Osborne to end the scheme in London and halve the maximum value of properties bought under it to £300,000. Ed Balls, the Labour shadow chancellor, wants a cut in the threshold to £400,000.
A fourth former chancellor, Ken Clarke, has told allies he is sceptical about the impact of the scheme, although he has not voiced these fears in public.
The Treasury said: “We’re dealing with a very specific issue in addressing a market failure after the financial crisis, which has been about affordability and availability of mortgages.” (FT)