The Bank has put the brakes on Funding for Lending - Why not on Help to Buy?

Threats of an overheating housing market have reached Threadneedle Street, and they're cutting out the mortgage incentives from the Funding for Lending Scheme (FLS).

This morning Bank of England governor Mark Carney said that "risks to financial stability may grow if there are further substantial and rapid increases in house prices".

FLS was launched at a time when many economists saw mortgages as too difficult to obtain, and now that house prices are rising, it's being withdrawn.

Help to Buy however, seems to have been born for political reasons - to play into rhetoric about home ownership and getting people "on the ladder". The second part was accelerated to time in with conference season.

It won't be going.

That's madness, according to Adam Smith Institute law fellow Preston Byrne, and author of Burning Down the House, a paper which argued that Help to Buy would increase prices, but not supply. “I didn’t think Government housing policy could make less sense. I was mistaken."

While the Bank of England withdraws a measure that reduces funding costs, the mortgage subsidies from Help to Buy part one and risk transferral from part two will stay in play.

Byrne says that government "can’t plausibly defend one subsidy on the basis house prices aren’t rising, while scrapping another on the basis they are."

Instead policymakers should be focused on the issue of supply - supply of finance isn't what's holding back otherwise willing homebuyers, but a dearth of new homes. While home building is on the rise the UK is still short.

The National Housing and Planning Advice Unit has estimated that the UK needs 290,500 additional homes a year. In the three years to June, just 334,000 were built. Liberalising planning rules could see more homes completed, more people in homes, and Carney wouldn't have to keep such a a close eye on the housing sector.

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