The Bank of England gave a clean bill of health to Britain’s flagship mortgage guarantee scheme yesterday, sparing the government from potential embarrassment in the run-up to a national election.
However, it asked for new powers to curb risky mortgage borrowing — including funding for buy-to-let investments for the first time — and said it would speed up plans to limit how much banks can lend relative to their capital.
When the BoE took over regulating Britain’s financial sector in April 2013, it shied away from the politically sensitive job of limiting how much Britons could borrow to buy a home. Since then, house prices have jumped 14% and the BoE’s new Financial Policy Committee has grown in confidence.
Tory prime minister David Cameron’s government asked the FPC to pass verdict on the Help to Buy mortgage guarantee scheme it launched late last year as a way to help homebuyers who could afford mortgage repayments but lacked a large deposit.
The plan was criticised at the time for its potential to push up house prices, which have since risen by around 10%.
The BoE said yesterday Help to Buy was not to blame, as it only accounted for around 5% of mortgages and was most used in regions where house prices had risen least.
“The scheme does not appear to have been a material driver of [house price] growth — for example, take-up of the scheme has been weak in London where growth has been strongest,” the central bank’s FPC said.
The FPC said house prices were cooling sooner than it had expected a few months ago when it urged banks to restrict some types of mortgage lending, and said Help to Buy had not led to looser lending standards.