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King issues warning over Help to Buy scheme

Sir Mervyn King has warned that the Government’s Help to Buy scheme is not a long-term solution, and that it must not become a permanent measure.

The outgoing Governor of the Bank of England said that the UK housing market could otherwise experience a situation similar to the sub-prime mortgage crisis suffered by the US.

Help to Buy was announced at the time of the 2013 Budget, and consists of two elements which aim to stimulate the housing market and make buying a home more affordable.

The first part of the scheme, which began in April and is set to last for three years, offers an equity loan of up to 20% of the value of the property to all buyers of new build properties worth up to £600,000, subject to a minimum deposit.

Meanwhile, the mortgage guarantee option will be available for three years from 1 January 2014, and offers purchasers of both new and existing homes a state-backed mortgage guarantee of up to 15% on properties with a maximum purchase price of £600,000.

However, some experts have expressed concern that the Government will come under significant pressure to extend the scheme.

Sir King commented, ‘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’.

‘We do not want what the United States have, which is a government-guaranteed mortgage market – and they are desperately trying to find a way out of that position.’