LONDON (Reuters) - The Bank of England must explain exactly how it will police Britain’s flagship ‘help to buy’ housing stimulus programme, the head of an influential parliamentary committee said on Saturday, amid concerns the scheme could inflate a property bubble.
With a 2015 election in mind, Britain’s Conservative government is pushing the plan as a way to help people move onto, or up, the property ladder, with the knock-on effect of stimulating growth after three-years of economic stagnation.
Andrew Tyrie, chairman of the Treasury Select Committee which scrutinises the finance ministry, wrote a sharply-worded letter to BoE Governor Mark Carney, asking him to clarify central bank’s role in overseeing the programme and how its independence would be safeguarded.
Critics say that unless the three-year scheme is properly scrutinised it could drive up house prices in sought-after areas like London and create a housing bubble that might burst when interest rates start to rise later this decade.
Tyrie, an MP for the ruling Conservative Party, was also concerned that the scheme may be politically difficult to withdraw, even if policymakers become convinced it poses a threat to Britain’s financial system.
“The scope and limits of the Bank’s role in this scheme need a good deal of clarification,” Tyrie said, commenting on his three-page, hand-signed letter which contained 10 questions for the governor to answer.
Surveys show expectations of rising house prices have generated a rise in consumer confidence, helping Britain’s economy grow at its fastest pace in more than three years between July and September.
However, some economists say growth based narrowly on the housing sector is unsustainable, and could leave households and Britain’s financial sector exposed to souring mortgage loans when official interest rates rise from the current record low.
In September, Chancellor George Osborne handed the central bank a key role in overseeing the scheme, asking for an annual report on its impact from the Financial Policy Committee (FPC) - the BoE body responsible for spotting systemic risks in the banking sector.
However, Tyrie said subsequent statements from politicians had muddied the water over how the FPC would help oversee the scheme, including whether it had the power to cancel the programme if it posed a threat to financial stability.
“Can you confirm that, contrary to remarks of several ministers, the FPC does not have a veto on any decision to maintain the scheme during its planned three year life, or later were it to be extended?” Tyrie asked in the letter.
Tyrie also expressed concern that, by asking the bank to advise on elements of the scheme such as fee structures, the FPC could compromise its independence and become a co-designer of a programme it is supposed to evaluate independently.
After two years of interim existence, the FPC was officially established in 2013 with a remit to protect the British financial sector by monitoring, identifying and taking action against risks that could topple the financial system.
Tyrie asked for any work already undertaken on the link between the housing market, the economic cycle and financial stability to be made available for his Treasury Select Committee to scrutinise.
Editing by Patrick Graham