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News - 22 May 2013

Sir Mervyn King criticises help to buy scheme

The outgoing governor of the Bank of England has issued a warning over George Osborne's plan to boost the housing market. He says that The Help to Buy scheme was "too close for comfort" to the US mortgage guarantee schemes that triggered the financial crisis and must not be allowed to become permanent.

The scheme, unveiled in the Budget, will see the Government guarantee up to 15% of a mortgage on properties worth up to £600,000, and is due to run for three years, beginning in January 2014

Responding to Sir Mervyn's comments, a Treasury spokesman said: "The Mortgage Guarantee scheme will provide much needed help for people who can't afford a big deposit to get a mortgage. This is a good use of the Government's fiscal credibility that will support home buyers and home building.”

Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“Help to Buy consists of two elements, an "equity loan" scheme and the mortgage guarantee. Under the equity loan new or existing homeowners will need to raise a deposit of 5% of the value of the property they want to buy, but can borrow up to a further 20% from the Government on an interest-free basis. The biggest loan available will be £120,000”

Sir Mervyn also called for an end to bankers being "demonised" for their role in the financial crash - insisting the problem was with the system rather than individuals.

He said: "What bankers did was not the only explanation of the crisis that we had.
"What we had was a world in which interest rates had become very low, investors of all kinds - not just banks - were desperately searching for ways in which they could earn more return, so they took big risks.”

Sir Mervyn also spoke about Britain's efforts to bounce back following the downturn, saying the country's economy had achieved "only a modest recovery".

"We are seeing a recovery. It's only a modest recovery, and we certainly can't be satisfied with it," he said.

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