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| Sir Mervyn King issues Help to Buy mortgage warning | Sir Mervyn King issues Help to Buy mortgage warning |
| (about 1 hour later) | |
| The outgoing governor of the Bank of England Sir Mervyn King has warned that a government scheme to help the housing market should not become permanent. | The outgoing governor of the Bank of England Sir Mervyn King has warned that a government scheme to help the housing market should not become permanent. |
| Under the plan, due to run until 2017, the state will guarantee up to 15% of a mortgage on homes worth up to £600,000. | Under the plan, due to run until 2017, the state will guarantee up to 15% of a mortgage on homes worth up to £600,000. |
| But Sir Mervyn said the UK must avoid emulating the US, where government-backed mortgage schemes had to be bailed out during the financial crisis. | But Sir Mervyn said the UK must avoid emulating the US, where government-backed mortgage schemes had to be bailed out during the financial crisis. |
| The Treasury said it would "support home buyers and home building". | The Treasury said it would "support home buyers and home building". |
| BBC business correspondent Joe Lynam said Sir Mervyn was concerned that, should Chancellor George Osborne's Help to Buy scheme become permanent, it could leave taxpayers exposed to billions of pounds in private mortgage debt for years to come. | BBC business correspondent Joe Lynam said Sir Mervyn was concerned that, should Chancellor George Osborne's Help to Buy scheme become permanent, it could leave taxpayers exposed to billions of pounds in private mortgage debt for years to come. |
| 'Too close for comfort' | 'Too close for comfort' |
| Help to Buy is due to begin in January 2014. | Help to Buy is due to begin in January 2014. |
| But in an interview to be broadcast on Sky News' Murnaghan programme on Sunday, Sir Mervyn, who has just over a month left of his decade-long tenure as bank governor, said: "I'm sure that there is no place in the long run for a scheme of this kind. | But in an interview to be broadcast on Sky News' Murnaghan programme on Sunday, Sir Mervyn, who has just over a month left of his decade-long tenure as bank governor, 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 [financial] crisis, and we need to get back to that healthy mortgage market. | "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 [financial] 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." | "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." |
| He added: "So, we mustn't let this scheme turn into a permanent scheme... when is the right time to terminate it will depend on economic conditions at the time." | He added: "So, we mustn't let this scheme turn into a permanent scheme... when is the right time to terminate it will depend on economic conditions at the time." |
| The outgoing governor's comments about Help to Buy echo those of the Treasury Select Committee, which warned in April that the government would come under "immense" pressure to extend the scheme in three years' time. | The outgoing governor's comments about Help to Buy echo those of the Treasury Select Committee, which warned in April that the government would come under "immense" pressure to extend the scheme in three years' time. |
| But any such decision would be made by the bank's incoming governor, Mark Carney - the Canadian who was hand-picked by the chancellor to succeed Sir Mervyn. | But any such decision would be made by the bank's incoming governor, Mark Carney - the Canadian who was hand-picked by the chancellor to succeed Sir Mervyn. |
| The Treasury stresses that it explicitly included this provision in the scheme. | The Treasury stresses that it explicitly included this provision in the scheme. |
| A spokesman said: "The mortgage guarantee scheme will provide much-needed help for people who can't afford a big deposit to get a mortgage." | A spokesman said: "The mortgage guarantee scheme will provide much-needed help for people who can't afford a big deposit to get a mortgage." |
| He added that the scheme represented "a good use of the government's fiscal credibility". | He added that the scheme represented "a good use of the government's fiscal credibility". |
| Equity loan | Equity loan |
| But Yvonne Goodwin, an independent financial adviser, told the BBC it could make buyers take risks. | But Yvonne Goodwin, an independent financial adviser, told the BBC it could make buyers take risks. |
| "The worry is, are the government actually doing this for political reasons to make people feel confident again?" she said. | "The worry is, are the government actually doing this for political reasons to make people feel confident again?" she said. |
| "People are sort of bonded to the idea that house prices always go up without coming down again, and they only need a bit more of a nudge to push them into buying something a little bit more expensive than maybe they can afford and this'll give them the ability to do that." | "People are sort of bonded to the idea that house prices always go up without coming down again, and they only need a bit more of a nudge to push them into buying something a little bit more expensive than maybe they can afford and this'll give them the ability to do that." |
| Help to Buy consists of two elements - an "equity loan" scheme and the mortgage guarantee. | 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. | 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. |
| In total the government will be guaranteeing £12bn worth of lending. | In total the government will be guaranteeing £12bn worth of lending. |
| Labour MP John Mann, a member of the Treasury Select Committee, told the BBC that "government interfering in the housing market" in this way had been "a disaster in the United States". | |
| He also said the scheme was designed to help young people onto the property ladder, but would struggle to succeed because not enough small starter homes were being built. |