Yahoo Finance Help To Buy Extension Sparks New Warnings
George Osborne has met major housebuilders and mortgage lenders to discuss the extension of his controversial Help-to-Buy housing scheme.
The Chancellor held a breakfast meeting at Number 11 Downing Street with executives from builders including Persimmon (LSE: PSN.L - news) and Taylor Wimpey (LSE: TW.L - news) .
Major lenders such as Lloyds Banking Group (Other OTC: LLOBF - news) and Barclays (LSE: BARC.L - news) were also at the summit, which Mr Osborne described on Twitter as a "good meeting".
Amid fresh warnings about the risks of the scheme, the Treasury insisted only credit-worthy borrowers would be able to take advantage of state guarantees.
The meeting came as new figures showed mortgage approvals by banks soared to a 17-month high in June, fuelling hopes of a housing market revival.
Some 32,278 loans worth £5.7bn were approved last month, according to the British Bankers Association (BBA), the highest figure since January 2012.
The BBA said purchases and remortgaging were up a third on last year and predicted various Government schemes would free up more housing chains.
The first stage of Help to Buy was launched in April and offers loans for people looking to buy a new property who only have a deposit of 5%.
The initial equity loan stage allows people to buy a new-build home worth up to £600,000 with a Government loan of up to 20%, interest-free for five years.
From next year, it will be extended to cover buyers of existing homes up to the same value.
From January, mortgage guarantees will see the state take on the risk of default by borrowers by guaranteeing a proportion of a home loan.
The Treasury insisted borrowers will be credit-checked and rejected if they cannot afford the mortgages. Buy-to-let landlords, buyers of second homes and those with property abroad are also excluded.
The scheme will see the state offer guarantees worth £12bn of the £130bn high loan-to-value mortgage lending.
It has been widely criticised for risking inflating another housing bubble and piling huge housing risk on the Government.
Former Bank of England governor Lord King told Sky News in May that the scheme is "too close for comfort" to a general scheme to guarantee mortgages.
The Bank's deputy governor, Paul Tucker, also warned that it would be "unwise" as a medium or long-term scheme.
"This is not a market that needs a permanent subsidy," he said recently. "They (home loan guarantees) are devices for getting out of a hole to dig another one for the future."
After Tuesday's talks, the Institute of Directors' chief economist Graham Leach warned extending the scheme could seriously backfire.
"The housing market needs help to supply, not help to buy and the extension of this scheme is very dangerous," he said.
"Government guarantees will not increase the supply of homes, but they will drive up prices at a time when it seems likely that house prices are already over-valued.
"There is a real risk that the housing market will become dependent on the underwriting by government, making it very difficult politically to shut the scheme down."
He urged the Government to look at relaxing planning laws and easing development charges to encourage house construction instead of seeking to "pump up prices".
The Council of Mortgage Lenders (CML) added that the guarantees must be easy to implement and have a "clear exit strategy".
However, Pete Redfern, chief executive of Taylor Wimpey, said: "This will have a direct impact on the second hand market and contribute to the overall health of the housing market with increasing transaction volumes and an increase in house-building."
Mr Osborne said: "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 house-building.
"As of today lenders, have the detail they need to go away and get ready for next January's launch."
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