Business secretary urges caution over mortgage guarantee scheme to avoid housing market getting out of control again

Vince Cable has warned that the Treasury's Help to Buy scheme could trigger a house price bubble.

The business secretary said he was worried about the scheme's possible impact. The policy could make it easier for people to obtain mortgages, but would have to be designed properly to minimise the potential risks, he told the BBC's Andrew Marr show.

Cable was talking about the scheme's mortgage guarantees on house purchases worth up to £600,000 that will come into effect in January next year. Another arm of the scheme, offering loans to people who buy newly built houses, was launched in April, but Cable said concerns had not been raised about this.

On the mortgage guarantee scheme, he said: "I did warn about it, and I am worried about the danger of getting into another housing bubble.

"If it's properly designed, it could be a useful addition. The Canadians, for example, have a guarantee scheme for the insurance that underlies the mortgage market, and it's stabilised it.

"But we mustn't risk returning to the problems of the last decade when housing got out of control."

The Treasury released some information about how the Help to Buy mortgage guarantee will operate last week. But crucial details, such as the fee for lenders to obtain a mortgage guarantee, have not been finalised.

Others who have expressed concerns include Sir Mervyn King, the former governor of the Bank of England, and the Institute of Directors, which described the scheme as "very dangerous".

In his interview, Cable said the real problem in the housing market was the lack of supply. House building, at the rate of about 100,000 new starts a year, was "hopelessly inadequate", and there was "a chronic deficit of social housing in particular".

The Lib Dems would be calling for councils to be allowed to build more housing at their party conference in the autumn, he added.

Asked about the state of the economy, Cable said that although the recent figures for growth were positive, any optimism should be tempered by caution.

"We don't yet know if it's sustainable, because it will need to go on for some years, and it's got to be of the right kind," he said.

"We can't repeat the mistakes of the past which led to the financial crisis – we've got to make sure that the growth is in exports, it's in business investment, and it's targeted at the long term, which is what we're trying to do through our industrial strategy."

He also said the Lib Dems would not go into the 2015 general election favouring a second coalition with the Conservatives. "We are [in coalition] at the moment, but at the next election, we will be competing independently, and will be equidistant between the other two [parties]," he said.

He confirmed that he would shortly be announcing a fresh crackdown on employers who do not pay the minimum wage.