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    Sir Mervyn King issues Help to Buy mortgage warning

    Finally and ironically, there may soon be less of a need to artificially kick-start home buying by the State. We had a very healthy mortgage market with competing lenders attracting borrowers before the [financial] crisis, and we need to get back

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Sir Mervyn King issues Help to Buy mortgage warning - BBC News

The outgoing governor of the Bank of England has warned that a government plan to boost the housing market should not become permanent.

Sir Mervyn King said there "was no place in the long run" for Chancellor George Osborne's Help to Buy scheme.

Under the scheme, due to run for three years from January 2014, the government will guarantee up to 15% of a mortgage on properties worth up to £600,000.

The Treasury said it would "support home buyers and home building".

"The mortgage guarantee scheme will provide much-needed help for people who can't afford a big deposit to get a mortgage," a spokesman said.

It's pretty rare for a sitting Bank of England Governor to publicly question government policy - however politicised that policy may appear.

But the fact that he's stepping down from the post he's held for a decade appears to have loosened Sir Mervyn's tongue a little.

More relevant though is the fact that many economists share Sir Mervyn's concerns about the Help to Buy scheme.

Some feel that the government has no business intervening in a private market - whatever the circumstances.

Others fear that such intervention could stoke up the kind of reckless borrowing that got the UK into such economic trouble only five years ago. Borrowing and spending is not conducive to the long-term goal of rebalancing the British economy.

Finally and ironically, there may soon be less of a need to artificially kick-start home buying by the State.

House prices are rising and the criteria for bank lending is also less strict than it was even a year ago- signalling a returning confidence.

An economy inching its way upwards - however glacially - may be one that doesn't need direct government intervention in the market.

But in an interview with Sky News' Murnaghan programme on Sunday, Sir Mervyn, who has just over a month left of his decade-long tenure as bank governor, publicly questioned the policy.

"I'm sure that there is no place in the long run for a scheme of this kind," he said.

"This scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the [financial] crisis, and we need to get back to that healthy mortgage market.

"We do not want what the United States have, which is a government-guaranteed mortgage market - and they are desperately trying to find a way out of that position."

He added: "So, we mustn't let this scheme turn into a permanent scheme... when is the right time to terminate it will depend on economic conditions at the time."

BBC business correspondent Joe Lynam said Sir Mervyn was concerned that, should the scheme become permanent, it could leave taxpayers exposed to billions of pounds in private mortgage debt for years to come.

The outgoing governor's comments about Help to Buy echo those of the Treasury Select Committee, which warned in April that the government would come under "immense" pressure to extend the scheme in three years' time.

But any such decision would be made by the bank's incoming governor, Mark Carney - the Canadian who was hand-picked by the chancellor to succeed Sir Mervyn.

The Treasury stresses that it explicitly included this provision in the scheme.

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.

In total the government will be guaranteeing £12bn worth of lending.

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