Help to Buy may be scaled back

The British Bankers’ Association has reported another rise in the number ofmortgages approved in December – now up 42% on a year earlier.

The six main high street banks approved 46,521 loans, up 1,127 on November, and meaning banks approved the largest number of loans for house purchase since the tail-end of the previous boom in late 2007.

That said, approvals are around 30% below pre-crisis levels of lending, and over 2013 banks shrunk their mortgage books by just under £1bn.

Matthew Pointon, property economist at Capital Economics, said while there is no sign yet that this risks turning into a lending boom he was not surprised that Bank governor Mark Carney is rumoured to be considering recommending a cut to the Help to Buy scheme.

“These numbers may increase concerns that the mortgage market is heading for another unsustainable boom. But while a possibility, we doubt that is the most likely outcome,” he said.

“Banks show no signs that they are about to start engaging in the kind of lending practices that characterised the mid-2000s credit boom, and the introduction of affordability tests in April will also keep a lid on lending.”

The Bank of England has additional powers it can use to control the mortgage market if it is becoming a risk to financial stability.

But Pointon warned it would send out a “very confusing message” if the Bank took action to cool the mortgage market at the same time as the government was attempting to pump it up using the Help to Buy scheme.

And he added: “The first step in any attempt to rein in mortgage lending would be to cut back, or even abolish, the mortgage guarantee aspect of Help to Buy.

“Indeed, there are now rumours that Mark Carney is in favour of cutting the Help to Buy maximum loan size from its current level of £600,000.

“Unfortunately, such rumours will only increase the risks of a housing market boom in the short term, as buyers rush purchases forward to take advantage of Help to Buy before it is cut. If the governor really does want to recommend a modification to the scheme, he should make the announcement sooner rather than later.”