Home loan scheme will raise house prices, not supply - budget watchdog

LONDON Wed Oct 9, 2013 5:36pm BST

A residential street is seen in Notting Hill in central London October 8, 2013. REUTERS/Toby Melville

A residential street is seen in Notting Hill in central London October 8, 2013.

Credit: Reuters/Toby Melville

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LONDON (Reuters) - The British government's plan to help aspiring home buyers will boost the price rather than the supply of housing, a member of the Office for Budget Responsibility said on Wednesday, just a day after the latest phase of the scheme was launched.

Critics of the Help To Buy initiative, which allows would-be homeowners to put down a deposit of as little as 5 percent on property, fear it could fuel another unsustainable boom in the housing market, with an economic recovery already pushing prices higher.

Stephen Nickell, a member of the Office for Budget Responsibility, rejected the idea of a bubble but suggested that demand for homes in Britain was rising faster than their stock.

Quizzed by a lawmaker on his previous comment that Help to Buy could increase prices rather than supply, he replied: "I pretty much said that, and I don't think my colleagues on the (OBR's) Budget Responsibility Committee would be moving up and down to disagree with me."

"You've got a fixed stock of houses... The price has to rise to ration the stock of houses across the people who want to buy. It's genuine demand," he added.

The OBR, which was set up by the government to produce economic forecasts and assess fiscal policy but is independent of it, will publish an analysis of the scheme later this year as part of its next set of predictions, Nickell said.

In an unexpected move last month, finance minister George Osborne asked the Bank of England's Financial Policy Committee to keep a closer eye on Help to Buy.

The central bank will now do an annual check on whether the 600,000 pound limit on properties that can be bought under the plan is too high and if fees charged to banks are too low.

Nickell expressed little concern about the risk of a housing bubble so far.

"My feeling is that there's quite a long way to go in the housing market before the FPC decides that they want to introduce some sort of restrictions," he said.

Under the latest part of Help to Buy, the government will offer to guarantee up to 15 percent of a mortgage, helping those who have been unable to put together the high deposits lenders now require.

(Reporting by Olesya Dmitracova; Editing by Hugh Lawson)

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