George Osborne's flagship scheme to boost Britain's housing market was attacked from within the industry on Wednesday when the head of the Council of Mortgage Lenders warned of the risk of "addiction" to home loan subsidies.
On a day that saw fresh evidence of rising demand for property, Nigel Terrington described the government's Help to Buy scheme as a "short-term fix" and said there needed to be a clear exit strategy.
The CML chairman told a mortgage conference in London: "It's important that Help to Buy doesn't morph into the US scheme, Fannie Mae [which provides federal government-backed mortgages to US home buyers].
"It should be a time-limited intervention to correct what is seen by the government as a temporary failure in the market to provide high loan-to-value mortgages in quantity. It must be a temporary fix, not a permanent feature."
Terrington, who is chief executive of buy-to-let mortgage lending specialist Paragon, added: "We don't want our customers – or the lending community – or indeed the political party of the day – to become addicted to the scheme as a permanent component of the UK's financial system."
His remarks echoed those of Lord Mervyn King, who expressed misgivings about Help to Buy before retiring as governor of the Bank of England earlier this year.
The government announced last month that the second phase of the scheme had been brought forward by three months, allowing potential buyers to receive a subsidy worth up to 20% of the value of a property up to £600,000. Critics say that it will lead to demand for homes outstripping supply, leading to a new housing bubble.
Concerns have increased in recent weeks following a plethora of surveys showing house prices on the rise. The latest, from the Halifax on Wednesday, showed that prices were up by 0.7% on the month and by 6.9% on the year.
Martin Ellis, economist at the UK's biggest mortgage lender, said: "Low interest rates, and higher consumer confidence supported by the increasing evidence that a sustainable economic recovery may now be under way, are helping to increase housing demand. Schemes such as Funding for Lending and Help to Buy also appear to have boosted demand."
The housebuilder Persimmon said sales since July were 45% up on the same period of 2012 and that it had sold 3,000 properties under the first phase of Help to Buy, which was limited to newly-built homes.
The Bank of England is looking closely at the state of the housing market and its governor, Mark Carney, has insisted that Threadneedle Street is prepared to act if necessary. The Bank has been given the power by Osborne to assess the impact of Help to Buy in the autumn of 2014, two years ahead of the date at which the support is due to end.
Terrington said that careful planning was needed. "We need tapering at the end of Help to Buy; not a cliff edge," he said.
"What we need is a Goldilocks market, where it's neither too hot nor too cold. A market where lenders have business plans which temper short-term profitability with long-term sustainability."
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