Chancellor of the Exchequer George Osborne defended his mortgage-support program as U.K. lawmakers questioned whether it might generate another housing boom.
Speaking to lawmakers in London today, Osborne said the program was designed to help people struggling to get affordable home loans at a time when the mortgage market remains impaired.
“The absolutely clear intention is to help people buy their first home, or move home as their family grows,” he told the cross-party House of Commons Treasury Committee. “We want to get this scheme right.”
Earlier today, the Office for Budget Responsibility cast doubt on the program, announced in Osborne’s budget last week, saying it may drive up house prices without boosting housebuilding significantly.
“Is it just going to drive up house prices? By and large in the short run the answer to that is yes,” Stephen Nickell, a member of the OBR, told the panel. “But in the medium term, will the increased house prices stimulate more housebuilding? Our general answer to that would probably be: A bit, but not very much.”
Critics have expressed concern that the taxpayer guarantee may be used by buyers of second homes, rekindling a housing boom in time for the general election in 2015.
Osborne said the proposal “corrects a market failure” and will also spur housebuilding.
“I don’t detect we’re in the middle of a housing boom,” he said. “Families are priced out of the housing market and that is neither economically right nor socially fair.”
He said he doesn’t envisage the program lasting longer than three years.
Osborne pledged 3.5 billion pounds ($5.3 billion) to help buyers of new homes with loans of as much as 20 percent of the property’s value, broadening an existing program beyond first- time purchasers. He also announced a plan to guarantee as much as 130 billion pounds of new mortgages to fuel demand from purchasers with limited cash for a deposit.
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