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Housing boom must be brought under control, says Cable

23 December 2013

The business secretary Vince Cable has revealed he believes action may have to be taken to slow the effects of the government's Help to Buy Scheme.

Since the initiative was introduced in April, the housing market has seen demand from first time buyers rocket as they look to take advantage of government subsidies offered to mortgage lenders.

The result has been a surge in young homeowners, but it has also lead to worries from some market experts over a shortage of one and two-bedroom properties. Similarly, the increased demand has lead to a sharp rise in house prices, something that spawned the reaction from Mr Cable.

He told the BBC that concerns over residents in London and the south-east being priced out of the market could mean the Bank of England will be forced to raise interest rates in order to curb this accelerated growth.

Speaking on yesterday's (Sunday December 22nd) Andrew Marr Show, Mr Cable conceded that a failure to hike interest rates could mean "this boom that is taking place in housing prices gets out of control and the only people that can afford to live in large parts of London are foreigners and bankers".

If the housing market does indeed slow as a result of increased interest rates, landlords insurance customers may find more tenants choosing to stay with the rented market as opposed to utilising Help to Buy to get on the property ladder.

Considering both sides of the argument, though, the Business Secretary recognised the detrimental knock-on effects a rise in interest rates could have on other areas of the economy that are still recovering.

In particular, he cited the manufacturing sector, which has been touted as being central to George Osborne's plan to re-industrialise the UK and return the nation to its former status as a worldwide centre for industry.

Although the sector has experienced a favourable change in fortunes across 2013, recent Confederation of British Industry figures indicated it has only just managed to harness an increase in export orders. Raising interest rates could, in turn, lead to a weaker pound, which would no doubt hinder the manufacturing sector's continued progress.