UK: Lloyds boss warns of housing bubble

Antonio Horta-Osorio, the boss of state-backed lender Lloyds who has warned that the Government's He

Antonio Horta-Osorio, the boss of state-backed lender Lloyds who has warned that the Government's Help to Buy scheme risks creating a dangerous house price bubble unless it is matched with a boost in housebuilding - Credit: PA

The boss of state-backed lender Lloyds has warned that the Government’s Help to Buy scheme risks creating a dangerous house price bubble unless it is matched with a boost in housebuilding.

In the latest high-profile warning over the scheme, Antonio Horta-Osorio called for relaxed planning and building rules and more social housing projects so that rising mortgage approvals do not drive up house prices.

The Halifax owner is a major lender under Help to Buy, which was recently extended to include a Government guarantee on high-risk mortgages, allowing people to buy a home with a deposit of just 5%.

In an interview with the Financial Times, Mr Horta-Osorio said: “It is important that planning permits, building authorisations and social housing projects are (liberalised) so that the increase in (mortgage) transactions does not lead to a substantial increase in house prices.”

Lloyds’ chief executive said the initiative needs “tweaking” to avoid overheating the market in the south east of England.

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He said: “The scheme should be focused outside London and the South East. (In the rest of the country) you have nothing close to a housing bubble.”

The warning came as the boss of Britain’s bad bank said Help to Buy could speed up the repayment of its £42billion taxpayer loan by lifting house prices.

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Richard Banks, who runs UK Asset Resolution, which manages the loans of failed lenders Northern Rock and Bradford & Bingley, said this could help lift customers out of negative equity - where loans exceed the value of their homes.

In an interview with the Times, he said: “If house prices go up outside London, it is a good thing for us as quite a few of our customers are trapped by their high loan-to-values.

“If higher house prices mean sufficient customers are able to and choose to remortgage with another mortgage provider, it may facilitate UKAR being able to pay off the Government loan more quickly.”

Mr Horta-Osorio is the latest high-profile voice to highlight concerns over the scheme, following warnings from former Bank of England governor Sir Mervyn King and the International Monetary Fund.

Recent official figures showed mortgage approvals running at a five-and-a-half-year high in August, while data from Nationwide showed house prices rose at their fastest annual pace in more than three years in September as the market revival spread across the UK.

Lenders including Halifax, Royal Bank of Scotland and NatWest have started offering mortgages under the scheme, while Santander, HSBC, Barclays, Virgin Money and Aldermore also plan to join it.

RBS/NatWest is offering a fee-free two-year fixed-rate deal at 4.99% for buyers with 5% deposits under the latest phase of Help to Buy.

A similar two-year deal with a fixed rate at 5.19% and a £995 product fee is available through Halifax and Bank of Scotland.

The scheme had initially not been expected to start until the new year but has been brought forward by three months.

It will offer £12bn in mortgage guarantees over three years and some estimates suggest 180,000 loans could be taken out under the initiative.

David Cameron has dismissed fears over Help to Buy and said it was “the right thing to do”.

“I don’t want to be the Prime Minister who stands aside, who says you can only buy a flat or a home in our country if you’ve got rich parents, that’s not fair,” he said.

An influential forecasting group, the EY ITEM Club, said today that fears that Help to Buy could lead to another housing bubble were “hysteria”.

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