UK help to buy scheme risks housing bubble, says business minister

LONDON (Reuters) - A flagship scheme to help British housebuyers could fuel property price inflation, the business minister said on Sunday, in the latest clash over policy between the two parties in the country's governing coalition.

"I am worried of the danger of getting into another housing bubble," Business Secretary Vince Cable told BBC television's Andrew Marr Show of a proposed extension of the Help to Buy scheme of government-backed home loans designed to revive the housing market.

Cable is a leading member of the Liberal Democrats, the junior party in the coalition, who has locked horns with his Conservative partners - backers of the scheme - over a number of economic policy issues.

Earlier this month he said Prime Minister David Cameron was endangering economic recovery by promising a referendum on European Union membership. Last week he accused the independent Bank of England of holding back economic recovery by forcing banks to build up capital.

The first phase of the Help to Buy scheme, which offers buyers of new-build properties an interest-free five-year loan for 20 percent of the property's value, kicked off in April.

But the more important second phase, which offers 12 billion pounds ($18.4 billion) of guarantees to back mortgages for buyers who lack large deposits, does not come into force until January next year.

"The Help to Buy scheme is actually quite complex. We have one part that's already operating, which is providing mortgages against new homes, nobody has questioned that," Cable said in quotes reported on the BBC's web site.

"The proposal which hasn't yet been implemented, which is providing a guarantee for a limited range of mortgages, could be a problem. It could inflate the market.

"But, if it's properly designed it could be a useful addition."

The plan has been welcomed by British mortgage lenders and housebuilders but criticised by the International Monetary Fund and the government's own budget watchdog, the Office for Budget Responsibility. Both warned that prices are likely to be pumped up more than supply, making it harder, not easier, for first-time buyers.

(Reporting by Andrew Callus; Editing by John Stonestreet)

Source: http://news.yahoo.com/uk-help-buy-scheme-risks-housing-bubble-says-135156837.html

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