The Bank of England is reportedly considering a change in the Help to Buy scheme to reduce the maximum mortgage loan.
The governor of the Bank of England, Mark Carney, told the BBC’s Newsnight he was concerned about the momentum that has picked up in the housing market.
He may now consult the Treasury about reducing the maximum loan size for the second phase of the Help to Buy scheme.
Currently, the scheme offers lenders a guarantee worth up to 15% of the value of a mortgage for properties valued up to £600,000.
This is over four times the value of the average mortgage advanced via Help to Buy so far, which stands at a little under £150,000.
Statistics show that the scheme has mostly benefited first-time buyers based outside of London and the South East. But it is these high-price regions that are most likely to be affected if the maximum loan size is reduced.
And capping the opportunity to fuel house price growth in these heated regions may yet persuade members of the Monetary Policy Committee that interest rate rises are not yet needed to kerb the momentum in the housing market.
"We took some initial steps to address that momentum," Dr Carney said, referring to the Bank’s decision to redirect the Funding for Lending scheme away from residential mortgages and towards small business lending. "We took our foot off the accelerator."
"We’re not hitting the brake yet on the housing market, because transactions are about three-quarters of what they were before the crisis, the longer term average. Mortgage approvals are about the same level. Prices have bounced off recent lows.
"There's much more to the housing market than just what’s happening in London and the South East, and we have to make national policy," he said.
Adam Posen, formerly of the Bank of England’s Monetary Policy Committee, has also weighed in with calls to "dampen" the Help to Buy scheme before it creates a new property bubble.
Mr Posen described the equity loan as "sort of useful", but said the Bank ought to be thinking about raising the loan-to-value requirements of Help to Buy (currently available up to 95%) or "generally trying to tighten it".
What do you make of the Help to Buy scheme? Are you a first-time buyer who has benefited from the scheme or hopes to benefit from it in the future? Will it affect your plans if the maximum loan is reduced from £600,000? Drop us a comment and let us know!
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