Former UK central bankers say mortgage scheme fuels debt risk
LONDON (Reuters) - Two former Bank of England policymakers criticized on Wednesday a flagship government scheme to boost mortgages, saying it would encourage more risky lending in an economy already overburdened with debt.
Former deputy governor Rachel Lomax described the Help-to-Buy initiative as a "short-term political fix" and a "hair of the dog" approach - a reference to treating a hangover with more alcohol.
Finance minister George Osborne announced the scheme in March as a way of helping people on to the property ladder at a time when banks are demanding big down payments.
It allows some buyers to get a mortgage with a deposit of just 5 percent via up to 130 billion pounds of government guarantees on high-risk mortgages for three years.
But it has attracted criticism that it will encourage a return to the risky lending that caused the housing market to overheat in the run-up to the global financial crisis of 2008.
Despite Britain's weakest economic recovery in decades, the Conservative-led government remains committed to a program of deficit reduction.
With one eye on the public finance pledges it made when it took power in 2010 and another on parliamentary elections due in 2015, it is trying to find ways to boost the flow of credit without adding to government borrowing.
But opponents of the scheme say any growth it engineers will prove unsustainable.
"This is not going to help. This is a short-term political fix," Lomax said, in unusually outspoken comments.
Lomax, who sat on the central bank's Monetary Policy Committee from 2003 and 2008, was speaking at a panel discussion on monetary policy issues organized by London-based Fathom Consulting.
Marian Bell, a second former Bank of England policymaker also not known for a sharp tongue, was equally dismissive.
"I really don't know what Help-to-Buy is trying to achieve," she said. "No way should they be encouraging risky mortgage lending. If it's there to boost construction of houses, there are more direct routes to that."
The government has also committed 3.5 billion pounds in shared equity loans for newly built homes.
The housing schemes complement the government's Funding for Lending Scheme, which is jointly run with the Bank of England and offers banks big incentives to frontload lending into this year and next.
Fathom, a consultancy run by former Bank of England economists, estimates the combined effect of the schemes could re-ignite a housing market bubble, pushing up property price inflation to almost 20 percent within the next two to three years.
That could generate a feel-good factor in time for the next election but at a cost to Britain's long-term economic health, said Fathom director Danny Gabay.
(Additional reporting by William Schomberg; Editing by John Stonestreet)
- Police hunt for motive as search for Malaysian jet spans hemispheres |
- Crimeans vote over 90 percent to quit Ukraine for Russia |
- Ukraine, Russia agree Crimea truce until March 21-Ukraine minister
- 'Good night': Haunting final contact from missing Malaysian jet |
- Malaysian PM says lost airliner was diverted deliberately |