Chancellor George Osborne has told homebuilders and lenders this morning that the new Help to Buy Scheme will boost the housing market but that it will not become a catalyst to a new wave of unsustainable debt.
The new mortgage guarantee scheme, due to begin in January 2014, will see the State guarantee a percentage of the mortgage loan against default to offer extra risk protection for lenders.
In turn, it is expected that lenders will increase their range of higher loan-to-value mortgages. Santander has already confirmed that it will offer three new 75% loan-to-value mortgages to support the initiative.
The bank said that the scheme had an important role to play, in helping first-time buyers and other homemovers looking to buy new-build properties.
The Council of Mortgage Lenders agreed that the new scheme was helping to create "favourable market conditions" for home-buyers.
However, it said that the Government needed "equivalent focus" on the building of new houses, to prevent a steep rise in prices if supply did not rise to meet demand.
New predictions by Savills, the estate agents, shows house prices rising by 3.5% in 2013, and by 18% over the next five years (read more).
Several Bank of England personnel have also expressed reservations about a scheme that offers state guarantees for mortgages.
The Help to Buy Scheme was announced at the last Budget back in March.
The Chancellor has warned that the new scheme will not result in giveaways. New buyers will still be subject to rigorous "stress testing", he said, to ensure that any loans part-guaranteed by the state will be affordable to the borrower.
The revelation is likely to mean that the scheme will not come as a haven for aspiring homeowners with a poor credit history. Nor will they be able to use a state-backed mortgage loan for a second property.
The CML’s director general, Paul Smee, said that lenders would continue to keep risk assessment at the core of its decision making.
"Lenders, whether they choose to participate in the guarantee scheme or stay outside, will continue to do their utmost to meet households' needs for mortgages, but always in a way that is responsible."
Keith McDonald
Which4U Editor
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