UK home loan scheme criticised by bank chief

The governor of the Bank of England has castigated a mortgage assistance scheme similar to one being proposed by the Government.

He said: “Help to Buy is a relatively small programme at this point, but it could grow a lot and it could change attitudes in other parts of the mortgage market. That’s why we have to be vigilant.”

While the Irish scheme is restricted to first-time buyers and average-sized homes, the broad parameters are the same, and pose the same difficulties, experts here warn.

“Shifting out demand to encourage supply seems to me to be like adding fuel to the fire in the hope that the fire brigade are more likely to turn up,” economist Ronan Lyons told the Irish Examiner. “The losers will be the very people the policy aims to help, first-time buyers who will be given more credit to bid against each other.”

The Irish scheme will allow first-time buyers to buy houses with smaller deposits, by giving out mortgages worth up to 95% of the value of the home.

Mr Lyons said the scheme is the wrong answer to the paucity of affordable homes.

“If you want housing to be affordable, increase supply — it’s no more complicated than that… What is particularly disheartening is that it comes so soon after Ireland tried this before and it went so spectacularly wrong. House price growth from 2001-2007 was driven almost exclusively by easy credit and that was where the damage was done.”