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Osborne Defends $5.3 Billion Housing Stimulus

The U.K.'s newly announced "right to buy" scheme will not fuel a potentially dangerous housing bubble similar to that seen in the subprime mortgage crisis in the U.S., the U.K.'s Finance Minster George Osborne told CNBC on Thursday.

One of the most eye-catching measures announced in Wednesday's budget was a 3.5 billion pound ($5.3 billion) mortgage scheme for struggling buyers, which will effectively buy a stake in a home of up to 20 percent if the buyer raises the other 5 percent of the deposit. The government is also set to guarantee 130 billion pounds ($195 billion) of mortgages for three years, allowing banks to provide more loans to people that can't afford the large deposits.

Commentators raised fears that it would stoke a housing price rise as seen in the run-up to the financial crash of 2008, when U.S. mortgage finance providers Freddie Mac and its larger sibling, Fannie Mae were taken over by the government as losses on souring loans mounted.

(Read More: Freddie Mac Turns First Annual Profit Since 2006)

"It's not the kind of thing we will do in a housing boom," Osborne told CNBC Thursday. "But at the moment our housing market is flat."

Construction output fell an annual 7.9 percent in January, according to the latest data from the Office for National Statistics, and showed a month-on-month drop of 6.3 percent. Housing prices meanwhile dipped once more in the three months ending February, the Royal Institution of Chartered Surveyors' (RICS) have said.

Although forecasts for the change in prices over the next 12 months rose to its highest in three years, according to RICS, and house sales reached their highest level in more than 2-1/2 years, it said.

(Read More: Credit Rating Fears Return as UK Growth Slashed)

"We're intervening for a limited period, for three years. and we're giving our independent Bank of England and the independent Financial Policy Committee there, the power to turn off the tap after three years. So we've got a very clear lock on this," Osborne said.

"It is a time limited intervention and I think it's the right intervention to get our housing market moving and help with construction jobs."

Contact Europe: Economy

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