Osborne warned over mortgages

George Osborne's Right to Buy mortgage scheme has been criticised as a "work in progress" that risks skewing the housing market at a huge cost to the Treasury.

Treasury defends Chancellor's Help to Buy scheme

Help to Buy is a targeted scheme designed to help people who aspire to own a home. By increasing mortgage availability it will support the construction of new homes and help to boost the economy.

All mortgages sold under Help to Buy will have to meet clear criteria that ensure responsible borrowing. Nobody wants to see a return to the bad old days of 125% mortgages.

The intention of Help to Buy is absolutely clear - it is for people who want to own their first home or move to a bigger home, not a second home. We're working with the industry on the details of the scheme to do just that.

– A Treasury spokesman

MPs outline criticism of mortgage guarantees

The Treasury committee has criticised several areas of the Chancellor's Right to Buy plans in a report on his latest Budget.

The intervention in the housing market may not even help first time buyers - the group the Government insists it is keen to support, MPs said.

They also said Mr Osborne's claim that increased demand will boost supply is "unconvincing".

MPs added that they "struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property".

The committee also warned the Government will come under "immense" pressure to extend Help to Buy in three years time, despite its status as "a scheme designed to deal with a supposedly temporary problem".

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What is the Treasury's Help to Buy scheme?

The Help to Buy scheme explained in graphic form. Credit: Treasury

Help to Buy consists of two elements, an "equity loan" scheme and the mortgage guarantee.

Under the equity loan new or existing homeowners will need to raise a deposit of 5% of the value of the property they want to buy, but can borrow up to a further 20% from the Government on an interest-free basis. The biggest loan available will be £120,000.

The mortgage guarantee element will be available for all types of housing stock worth up to £600,000 from January. The Government will guarantee up to 15% of a mortgage, allowing people with 5% deposits access to lending.

Read: Could the Guarantee make mortgages more expensive?

Osborne warned over risk of Help to Buy scheme

The Chancellor's department has been told by MPs to "think schemes through carefully before announcing them". Credit: Lefteris Pitarakis/PA Wire

George Osborne risks skewing the housing market at a huge cost to the Treasury with plans to boost home ownership through mortgage guarantees, a powerful committee of MPs has warned.

The Treasury committee warned the Chancellor's Help to Buy scheme is "very much work in progress" and may propel the Government as an active player in the market with a financial interest in maintaining house prices.

MPs warned a lenders fee structure the Government intends to put in place to cover the scheme's costs will be "extremely difficult" to price in a way that "sharply curtails Exchequer risk".

Read: What the Budget means for house buyers and mortgages