Osborne dismisses fears of house price bubble

LONDON Thu Jul 11, 2013 3:07pm BST

Britain's Chancellor of the Exchequer George Osborne walks to an appointment on the Strand in central London June 19, 2013. REUTERS/Stefan Wermuth

Britain's Chancellor of the Exchequer George Osborne walks to an appointment on the Strand in central London June 19, 2013.

Credit: Reuters/Stefan Wermuth

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LONDON (Reuters) - Chancellor George Osborne played down concerns that house prices might rise too quickly because of government measures to help mortgage lending.

Recent surveys suggest government support is stoking Britain's housing market, which in recent decades has been characterised by dramatic price surges followed by strong corrections.

Prices nationally are rising at their fastest pace in three years and hot-spots have emerged in parts of London where property inflation is running well into double digits.

Osborne told a parliamentary panel the Help-to-Buy scheme was unlikely to be extended but would not be wound up before the three-year term was up.

He said the scheme, which offers subsidies to riskier borrowers finding it hard to buy a house, was a targeted response to a malfunctioning mortgage market and dismissed concerns property prices had become a one-way bet.

"I don't think in the current environment a house price bubble is going to emerge in 18 months or three years," he said.

The International Monetary Fund, former Bank of England officials and some serving policymakers have been critical of the government's intervention.

Osborne, facing tough questioning from the Treasury Committee, said the ideal scenario would be for property prices to rise in line with earnings but the scheme would not end prematurely even if prices rose faster.

"You have to provide some kind of timeframe to mortgage companies and banks which are going to be investing in systems to deliver the scheme," he said.

Donald Kohn, former Federal Reserve vice-chairman and an external member of the Bank of England's Financial Policy Committee, said earlier this month there were risks Britain could end up with its own version of Fannie Mae and Freddie Mac.

The U.S. government-sponsored housing finance giants were widely criticised for their role in the run-up to the U.S. housing bust.

UK homebuilders, which have seen profits and share prices soar in recent months, have sought more clarity on how Help-to-Buy will end.

Osborne said the scheme had been the subject of "lengthy discussions" with former BoE governor Mervyn King who backed it. He reiterated that the central bank's financial stability watchdog would have an important say on whether the scheme was extended.

"There is a clear red light available in the system," he told MPs, noting it would be politically very difficult for the government to go against the view of the central bank.

Osborne said more details of how the scheme would work would be published in the "next couple of weeks".

(Editing by David Cowell)

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