The Tory help-to-buy housing bung looks "foolish and discredited" after the Bank of England scrapped funding for cheap mortgages, economist Michael Burke said yesterday.

The bank had been helping high-street lenders to offer low-interest mortgages and personal loans though its funding for lending scheme.

It ran alongside the government's help-to-buy housing scheme, which guarantees mortgages for lenders with deposits as little as 5 per cent.

But governor Mark Carney scrapped the scheme on Thursday amid fears it is helping to build another housing bubble.

Mr Burke of the Socialist Economic Bulletin said it dealt a blow to the logic of the government's help to buy scheme.

"It's just not true that demand creates its own supply," he told the Star.

"If you don't build any homes but you provide more funds for homes then the price of homes can only go up.

"The Bank of England thought that was getting out of hand and clearly wants to keep interest rates low because the economy is not robust despite all the guff we hear. "

Mr Burke said the government won't scrap their own policy, which he said should be called the "help to buy votes" scheme.

However he explained the Bank of England could use its powers to have a more positive impact on housing.

"The Bank of England and other central banks used to use credit direction - telling high- street banks they had to lend to different sectors," said Mr Burke.

"It's exercised in a negative way this time by telling the banks they shouldn't provide mortgage lending.

"But they could tell them to provide funds for local authorities to build council housing of a decent quality, providing homes that are actually needed and jobs."

Nationwide reported yesterday that house prices have risen by 6.5 per cent over the last year - the fastest rate in more than three years.

The Bank of England said it would now focus lending to small business.

Labour that was an admission that the government has "badly failed Britain's businesses."