OECD urges govt. to take steps to prevent property bubble

Concerned over soaring house prices across the UK, the Organisation for Economic Co-operation & Development (OECD) has urged the government to scale back its controversial "Help to Buy" scheme that allows people to buy a property with just a 5 per cent deposit.

The OECD also urged the Bank of England (BoE) to dampen the country's booming property market by diluting the government's attractive mortgage subsidies.

The think tank pointed out that house prices in the country looked overvalued relative to consumers' average earnings and rents, adding that the time had come for the government to take counteractive steps.

In its latest report, the OECD said, "Monetary policy tightening should be accompanied by timely prudential measures to address the risks of excessive house-price inflation. House prices ... significantly exceed long-term averages relative to rents and household incomes."

The government's "Help to Buy" scheme offers state guarantees for mortgages worth up to 600,000 pounds, along with maximum loan-to-value ratios for mortgages and higher capital requirements for lenders. A number of experts have suggested that the cap of 600,000 pounds in the scheme should be reduced.

The "Help to Buy" scheme's mortgage guarantee element was introduced in October last year and is scheduled to end in December 2016.

The OECD also hiked its forecast for the UK's economic growth for a couple of years. It estimated that the country's gross domestic product (GDP) will grow 3.2 per cent in 2014 and 2.7 per cent in 2015.