Help to Buy scheme warnings

George Osborne has announced details of an extension to his mortgage guarantee scheme to help people buy existing homes, pledging that the plans "will boost housebuilding." But industry representatives have warned about the dangers of the policy.

Osborne: New scheme 'will boost housebuilding'

The Chancellor has met lenders and builders to discuss details of the Government's mortgage guarantee scheme:

The mortgage guarantee will support an increase in high loan-to-value mortgages for people who can’t afford large deposits, and it will also boost housebuilding.

As of today, lenders have the detail they need to go away and get ready for next January’s launch.

– George Osborne, Chancellor

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What is the 'Help to Buy' housing scheme?

George Osborne is meeting major housebuilders and mortgage lenders today to discuss an extension to the Government's flagship housing stimulus programme.

The 'Help to Buy' scheme is available to first-time buyers and existing homeowners on properties worth up to £600,000.

How does it work?

  • The first stage of Help to Buy, offering loans to buy a new-build home with a deposit of just 5%, launched in April
  • Government loans up to 20% of property value, interest-free for five years, to boost a buyer's deposit
  • Scheme credited with spurring a surge in home sales and driving up prices
  • The second stage of the scheme, 'mortgage guarantees', is due to launch in January
  • Will see state take on risk of default by borrowers by guaranteeing proportion of loan
  • Scheme aims to boost mortgage availability by reducing risk for lenders
  • Will be extended to existing homes, not just new-builds
  • Criticisms include risk of creating housing bubble and piling huge housing risk on Government
  • Pete Redfern, boss of Taylor Wimpey, said scheme could be a "hazard to the economy" unless a clear exit plan is laid out
  • Former Bank of England governor Lord King warned scheme is "too close for comfort"

More: Help to Buy - a help or a hindrance?

Lenders want 'clear exit strategy' in housing scheme

Mortgage lenders say they still don't have all the details they need to participate in the Government's new housing scheme.

The Council of Mortgage Lenders said the Help to Buy mortgage guarantee scheme, which is due to launch in January, must have a "clear exit strategy" and not create a housing bubble.

"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," said CML director general Paul Smee.

George Osborne is set to announce more details on the scheme today.

Help to Buy scheme is a 'sticking plaster'

A National Housing Federation report has said that the Chancellor's Help to Buy scheme does not address the root of the housing crisis:

Making mortgage deposits cheaper to aspirant homeowners without increasing housing supply doesn't tackle the root of the problem. It simply risks creating another housing bubble where prices are pushed up.

These sticking plaster answers will not heal our critically injured housing market. We need a vision from our leaders that looks far beyond future elections - a long-term house building programme that will create jobs, pump money back into the economy and give hope to millions of young people around the country dreaming of adulthood and independence.Britain must get building again now. The future of the country - and our young people - depends on it.

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