Carney: Help to Buy won’t be allowed to fuel housing bubble

Mark Carney Begins Role As New Governor Of Bank Of England

The new Bank of England Governor has pledged that the Bank will bring the Help to Buy scheme to an end if it threatens to create a housing bubble.

In an interview with Sky News, Mark Carney said that he and the Financial Policy Committee would not extend the scheme beyond its initial three year period if it started to threaten the stability of the economy. The statement is doubly significant since George Osborne has given the Bank the responsibility to switch off or extend the scheme, under which the Treasury will help fund a portion of homebuyers’ deposits.

The Governor’s comments came as he unveiled his new policy of “forward guidance”, under which the Bank will pre-commit to fixing interest rates until unemployment drops beneath 7%. He said that he would not allow it, or Help to Buy, to fuel a housing bubble.

“If the view at a point in time is that [Help to Buy] is contributing to an underlying vulnerability of risk to the UK economy, I would fully expect that the Financial Policy Committee would not expect to extend it, but that is a hypothetical.

“This is an independent institution that fully stands ready to discharge our responsibilities.”

The comments come amid growing consternation about Help to Buy, which is actually made up of two parts – a shared equity scheme for first time buyers and a mortgage guarantee scheme. Many economists have warned that it could contribute to a bubble in the property market – though others have suggested that housing remains underpriced.

The Governor said that forward guidance would help reassure borrowers that their costs will remain unchanged for longer, and so encourage them to spend and invest. However, he conceded that life remains tough for savers. He said: “We have tremendous sympathy for savers in this country: they have done the right thing, they have put money aside and we are fully aware they are earning much lower returns on those savings then they would have expected before.

“That is one of the consequences of the terrible financial crisis that was inflicted on this country.”

He added that the scale of the slump remained intimidating.

He said: “Remember we are just beginning; we are just in the early stages of a recovery: a recovery that is a recovery from the worst period of growth on record. We are just in the beginning.

“In order to have that strong recovery we need certainty and that is what, through forward guidance, the MPC is providing.”

You can see the full interview here.

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