Bank of England asked to "clarify" its Help to Buy supervisory remit

The Treasury Select Committee has written to Mark Carney, Governor of the Bank of England (3-page / 901KB PDF), to clarify whether the central bank's supervisory role goes "beyond what [the Financial Policy Committee] considered its statutory role to be" before the Chancellor announced in September that he would be taking its "recommendations" in relation to the scheme.

"Further information is required about the FPC's role in the scheme, the degree of its detailed engagement while the scheme is in operation and about its work that the Bank may have done on the housing market and its link to financial stability," said Andrew Tyrie, Treasury Committee chair, in the letter.

"Given the close historical relationship between housing finance and the UK business cycle the Treasury Committee will want to see as much as practicable of the supporting work already prepared for the FPC on the links between the housing market, the economic cycle, and financial stability, as well as supporting work prepared during the [Help to Buy] Scheme's life," the letter said.

The letter follows on from concerns about the scheme raised by the Treasury Committee in its April report on the 2015 Spending Round, as well as recent press reports claiming that the Bank of England now has the power to close the scheme if it results in a risk to financial stability. Tyrie has asked the FPC, which is part of the Bank of England and the UK's 'macro-prudential' economic regulator, to discuss the letter at its next monthly meeting, on 20 November.

The Help to Buy scheme will run in two phases: a mortgage guarantee scheme, under which the Government will offer guarantees to lenders offering mortgages to buyers who have a deposit between 5% and 20%; and a shared equity loan programme. This will provide purchasers of new-build homes with a Government loan worth up to 20% of the value of a home worth up to £600,000.

In September this year, the Chancellor announced that the FPC will be able to scrutinise Help to Buy once a year from September 2014, once it has been running for a year, instead of only at the end of the three-year life of the scheme, as initially announced. In its letter, the Treasury Committee asked the FPC to confirm that its role was advisory and that it did not "have a veto on any decision to maintain the scheme" either during the initial three years, or later if the Government decided to extend it.

The letter also raises concerns that the FPC could compromise the independence with which it is expected to evaluate the scheme by effectively becoming a "co-designer" of Help to Buy. It asks whether it would be appropriate for the FPC to sign a Memorandum of Understanding with the Treasury, "clarifying the scope and limits of the Bank's responsibilities with respect to Help to Buy".