Business Secretary, Vince Cable said yesterday on the Andrew Marr Show that he believes the 'Help-to-Buy' scheme announced by George Osborne in the March Budget statement, could inflate the housing market as occurred in the last decade. He is worried the scheme "might backfire".
From January next year, buyers will benefit from government guarantees on mortgage loans that should allow them to obtain lower mortgage rates, even if they only have modest 5% deposits.
The £130 billion mortgage indemnity scheme is intended to boost economic recovery, while allowing people to achieve their aspiration of buying a home.
However, many economists and business leaders have warned about the scheme. Mr Cable - who previously warned about the dangerous levels of debt before the financial crisis - has now indicated he shares their concerns.
"I am worried about the dangers of getting into another house price bubble..." the senior Liberal Democrat said.
The former Governor of the Bank of England Mervyn King, has also warned that the scheme is "too close for comfort" to a general scheme to guarantee mortgages.
The Bank's deputy governor, Paul Tucker, also warned that it would be "unwise" as a medium or long-term scheme.
"This is not a market that needs a permanent subsidy..." he said
Last week, Graeme Leach, Chief Economist at the Institute of Directors, also attacked the 'Help-to-Buy' scheme and saying it will "drive up prices".
Enabling people to buy a home they cannot otherwise afford, with government guarantees, is madness. Especially when economic experts are warning of the consequences.
The further expectation that homebuyers will then support the general economy by spending on consumer goods such as furniture and improving their homes, again with money they do not have, is how the 2007 financial crisis was created!
A debt-fuelled recovery is not a recovery at all.
The £130bn Help to Buy scheme has been termed a "government bung to house builders and estate agents."
