Ex Bank of England policymaker hits out at Help to Buy

A former member of the Bank of Englandís Monetary Policy Committee (MPC), has branded the coalitionís flagship Help to Buy scheme ëdysfunctionalí and ëmistakení, as growing pressure mounts on the government about the future of the Mortgage Guarantee Scheme.
Adam Posen, called for the government to focus on creating a greater level of affordable property across the UK, and in particular London, rather than on encouraging people to take on high levels of debt at low borrowing costs that will rise 
in the future.
The government have been under intense pressure to reconsider the 2nd phase of their Help to Buy scheme, the Mortgage Guarantee, which has been cited as a primary factor for artificially increasing the prices of property at such a quick rate, by enhancing demand at a rate far faster than supply.
Moreover, many have questioned how those with middle incomes will cope when interest rates rise, as the scheme has allowed a number of people to pay just 5% on their deposits and acquire mortgages with as high as 95% loan to value. 
This could culminate in a ëbubbleí later on down the line it has been argued as people will not be able to afford their household costs when the Bank of England raise interest rates from their historic low of 0.5% sometime in the next 2 years. 
And Posen called for the scheme to be dropped, identifying that all areas of the country, ranging from the North to the Midlands, are in dire need of a house building programme that will stabilise the market.
Mr Posen said: “I find this whole initiative largely mistaken by the Treasury.”
“The idea of pumping up credit for middle to upper-middle class people to spend more on housing, when people have already spent too much on housing, is dysfunctional,” Mr Posen said. 
“We need a distinction between housing policy and mortgage policy, and we need affordable housing in the great cities of the North.
“London is now semi-detached from the rest of the country. There’s a perception that it’s just pockets in Kensington or Chelsea, but increasingly the homes in zone two or zone three are going out of the price range of normal people.”
Chancellor George Osborne announced that he would be creating a new ëgarden cityí in Ebbsfleet which will offer 15,000 new homes for people to purchase, and suggested that it would be the first of many to come in order to address the UKís housing shortgages. 
End ëculture of trustí
Mr Posen also called for the Bank of England to end their ëculture of trustí with the UKís major banks, arguing that they should clamp down on their conduct in order to improve the industry as a whole. 
He argued that the Bank have been far too trusting that banks will always conduct themselves for the benefit of the public, when they should be regulating all of their activity at all times to ensure this is the case. 
“There now has to be a top-down explicit statement that our bias is towards market solutions, not cosy conversations with banks… saying that the Bank of England is neither the friend, nor the enemy, of our banks,” he said.
“It was, in my opinion, not corrupt – but it was badly mistaken.”
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