The Governor of the Bank of England has said there is no place for the Government’s flagship scheme to help people on to the first rung of the housing ladder in the “long run”.
Sir Mervyn King, in an interview with Sky News, said the Help to Buy scheme, announced as part of the Budget in March, was not part of a “healthy mortgage market”.
His comments, in an interview to be broadcast on Sky News’s Murnaghan programme on Sunday, come despite recent evidence from the Royal Institution of Chartered Surveyors that inquiries from new buyers are at their highest level since November 2009.
Asked if the Bank will decide to pull the plug on the scheme, which it guarantees, the outgoing Governor was critical. “I’m sure that there is no place in the long run for a scheme of this kind. This scheme is a little too close for comfort to a general scheme to guarantee mortgages,” Sir Mervyn said.
“We had a very healthy mortgage market, with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market.”
He also used the interview to say that the UK is in a “recovery period,” his strongest words to date on the health of the domestic economy.
“We will need to do more to use up the spare capacity, and to get back to a healthy, growing economy. But we are in a recovery period now, I think, yes.”
Meanwhile, a leading economist has warned that Britain is as toxic as “kryptonite” and may prove to be too damaged for incoming Bank Governor Mark Carney to fix. Mr Carney takes over from Sir Mervyn on July 1. Stephen King, the global chief economist of HSBC and author of When The Money Runs Out, has dented hopes that Mr Carney will return the country to prosperity. He is “not likely to have much of an impact”, Mr King said.
Mr King warned: “Mr Carney’s biggest problem is he’s managed to end up with this image of being like a monetary superman. And when he gets to Britain he may discover there are large amounts of kryptonite that will actually reduce his powers quite significantly.”
Mr Carney has insisted monetary policy is not “maxed out”, but Mr King said his big idea – of using “guidance” to manage interest rate expectations – was unlikely to be very powerful. “[It’s] difficult to know exactly how that might work because everyone knows already that rates are likely to remain lower for a very long time, so it’s not likely to have much of an impact on expectations,” Mr King said.
Signs that the economy has turned the corner, as the Bank forecast last week, are expected to be reinforced by official confirmation on Thursday that GDP grew by 0.3pc in the three months to March.
The International Monetary Fund is also expected to deliver its review of the UK. It may follow through with its threat to demand that George Osborne slow the pace of austerity to restore growth and get the public finances under control.