04/08/2014 06:41 BST | Updated 04/08/2014 06:59 BST

OECD Urges Osborne To Rein In Help To Buy Morgage Scheme

Stefan Rousseau/PA Wire
Chancellor George Osborne visits Barratt Homes Help to Buy housing development in Lewisham, south east London, where he helped to screw a hinge onto a door.

George Osborne has been urged to rein in his controversial mortgage guarantee scheme before it distorts Britain's property market by the head of the Organisation for Economic Co-operation and Development.

OECD secretary-general Angel Gurria said the Chancellor should more than halve the eligible house price limit for the state-backed loans from £600,000 to the national average of £262,000 and work out how to wind down the scheme.

“It was a good idea and it worked,” he told the Times. “Now the economy is back on track. The price of houses has gone double digit. Do you still really need the mechanism? You need to think about moving towards normality before distortions set in.”

This comes amid mounting concern over whether the Help to Buy scheme, which was launched by Osborne, would push up house prices by failing to build enough homes. Business secretary Vince Cable warned in September that Help to Buy should be rethought as it risked causing another housing bubble.

The programme, which was previously dismissed by Lib Dem peer and ex-coalition Treasury spokesman Matthew Oakeshott as "Help to Buy Conservative votes", has helped fund the building of nearly twice as many homes in Conservative constituencies (15,240) as in Labour areas (8,741).

There were 74% more new-builds funded in Conservative constituencies through the Help to Buy scheme, according to recent Knight Frank research.

The OECD's warning to Osborne comes as new figures show that housebuilding grew at its fastest rate in more than a decade in July as demand for new homes soared.

According to Market's monthly survey, construction activity grew for the 15th successive month as companies took on record numbers of staff.

Tim Moore, senior economist at Markit, said: "July’s figures suggest the UK construction sector is enjoying its strongest cyclical upswing since the global financial crisis, while a new record rise in employment highlights that construction firms are increasingly confident about the sustainability of the upturn."

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