As the property market chugs ever higher and the London bubble inflates to new, worrying levels, George Osborne’s decision to introduce the Help to Buy mortgage guarantee scheme last year looks ever more suspect.
Mark Carney’s words of caution over the weekend are a reminder of that fear – but he is hardly the first person to raise concerns over the structure of the property market, and the Chancellor’s landmark policy.
There was no shortage of people who questioned the decision when it was announced (and before it was implemented). The previous Bank of England Governor, Mervyn King, criticised it as “too close for comfort” to the kinds of mortgage guarantee schemes that toppled the American financial system. Treasury insiders were privately horrified, but could do little to deter their political overseers.
The ironic thing is that that scheme probably wasn’t necessary at all. A look back at the data suggests that the housing market, like the broader economy, was already starting to turn early last year, before the introduction of the policy. In the event, it only added more fuel to an already spreading fire.
It looks almost certain (as it has done for some time) that the Bank will take action to dampen H2B’s effects – probably reducing the cap on eligible properties from £600,000, possibly increasing the charges banks face on the highest loan-to-value mortgages. Though most people expect this in September, it could happen as soon as next month, when the Financial Policy Committee meets to discuss this.
The Chancellor is privately comfortable with such checks, and will go along with them. After all, far more important than the number of loans issued under Help to Buy (which remain small) is the message it has sent out: that the Government will stand behind home ownership.
Whether stoking up demand for houses is the right move will depend on whether the Treasury can make good on the other side of the equation: supply. It is under no delusions about the importance of doing so: the Chancellor has allotted some of his senior-most aides almost exclusively to considering how to get more homes built. And housebuilding has started, slowly to increase. But it remains well below its previous peak, and so lamentable has Britain’s performance on this front been in recent years that a terrific backlog has built up. Some 4.3m homes were built in the 1970s and 1980s; 2.7m were built in the two decades up to 2012.
The reality is that Chancellors are often remembered not for their performance during their time in office, but for what succeeds them. Gordon Brown for the 2008 crash, Nigel Lawson for the housing crash after he left office. Up until recently, it seemed likely that George Osborne would be remembered mainly for repairing the public finances after the Great Recession, but with Help to Buy he inserted a wildcard into the narrative. If the London bubble spreads out nationwide, and then goes pop, there’s a chance he is remembered for that rather than the hard work and toil he carried out in the early years of his tenancy.