Could the Guarantee make mortgages more expensive?

A couple look at properties for sale in an estate agent's window. Photo: PA Wire

I've just been talking to a mortgage expert about how the government's enormous Mortgage Guarantee scheme might actually work.

It is certainly early days, and there is huge potential in the plan. But there are a few points already emerging could prove tricky:

1) It is now clear that lenders themselves will have to pay a fee to the government to be given the guarantee, and they will have to bear the cost of any losses. They have no idea yet what size the fee will be. But lenders will have to find the money to do that from somewhere. And I'm told the only way they will be able to do that is by passing the costs on to the borrower - that could mean a higher interest rate or bigger fees for buyers who have less cash to put down. So while the plan opens up the possibility of buying a house to millions who at the moment can't find the money for a deposit, they might have to pay more for the privilege - an irony indeed.

2) Will the government quickly exclude the possibility that wealthy people who want to buy second homes can use the scheme for that purpose? The Treasury and Number 10 is yet to rule it out, and as we reported last night, it has not been officially excluded. But a senior Lib Dem source has just told me, "we will not allow it to happen". Labour is on the hunt for a U-turn.

3) Lenders have only really had 'preliminary discussions' with the Government about how the process might work, so although they are welcoming it, they are not sure yet if it will be worth their while economically. Some lenders, who already have access to plenty of cheap cash, may feel that the sums don't really add up for them.

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