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OECD issues house price warning

Chancellor George Osborne has come under pressure to scale back the government's Help to Buy scheme following a warning issued by the Organisation for Economic Cooperation and Development (OECD).The OECD has published a report claiming the UK's housing market is in danger of overheating unless action is taken by ministers and regulators to check rising prices."Monetary policy tightening should be accompanied by timely prudential measures to address the risks of excessive house price inflation," it states."House prices are buoyant and significantly exceed long-term averages relative to rents and household incomes."Actions to cool the market could involve a tightening of the Help to Buy scheme, which offers state guarantees for mortgages of up to £600,000. The OECD suggested introducing higher capital requirements for lenders and maximum loan-to-value ratios for mortgages.It said government changes to pension rules, allowing people to take higher lump-sum withdrawals from their savings, could act as a market stimulus.Recently, the Bank of England's Sir Jon Cunliffe issued the institution's strongest warning yet that house prices may be rising too rapidly.He warned of a "major overshoot in prices and build-up in debt, followed by a sharp correction with negative equity and an overhang of debt for many households".It would be dangerous to ignore the momentum in the housing market, Sir Jon claimed, adding that such circumstances have been seen before in the UK.The government has hailed the success of its Help to Buy scheme, crediting this and other initiatives for helping over 100,000 people onto the property ladder. It also claims such policies have boosted the rate of housebuilding in the UK.However, the gap between supply and demand is proving to be persistent and house prices have risen by more than ten per cent over the past year.The BoE introduced stricter rules on mortgage lending last month, subjecting buyers to more rigorous credit checks. At the end of last year, it restricted the funding for lending scheme to businesses, but it has yet to alter Help to Buy. 

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