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| George Osborne's Help to Buy scheme attacked by economists | George Osborne's Help to Buy scheme attacked by economists |
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| George Osborne's latest attempt to kickstart the economy by spending billions of pounds on underwriting a homebuying revival came under fire from economists and politicians on Tuesday, with one leading business body branding it "very dangerous". | George Osborne's latest attempt to kickstart the economy by spending billions of pounds on underwriting a homebuying revival came under fire from economists and politicians on Tuesday, with one leading business body branding it "very dangerous". |
| The Institute of Directors (IoD) joined critics who claim the scheme to partially guarantee more than 500,000 low-deposit mortgages over three years risks creating a new housing bubble. | The Institute of Directors (IoD) joined critics who claim the scheme to partially guarantee more than 500,000 low-deposit mortgages over three years risks creating a new housing bubble. |
| The chancellor launched the second phase of the Help to Buy scheme in a meeting with mortgage lenders and housebuilders on Tuesday, laying out the terms of a programme that will underwrite home purchases worth up to £600,000. | The chancellor launched the second phase of the Help to Buy scheme in a meeting with mortgage lenders and housebuilders on Tuesday, laying out the terms of a programme that will underwrite home purchases worth up to £600,000. |
| The mortgage guarantee element of Help to Buy, due to come into effect in January 2014, is aimed at enabling people to obtain a home loan without the need for a prohibitively large deposit. This will apply to all homes – not just new-build properties – and will be available to those who are already homeowners as well as first-time buyers. | The mortgage guarantee element of Help to Buy, due to come into effect in January 2014, is aimed at enabling people to obtain a home loan without the need for a prohibitively large deposit. This will apply to all homes – not just new-build properties – and will be available to those who are already homeowners as well as first-time buyers. |
| The government will make available £12bn of guarantees to lenders – enough, it believes, to support £130bn of mortgages where a deposit of as little as 5% is required. Lenders who offer low-deposit mortgages will have the opportunity to buy a guarantee on the "top slice" of the mortgage – the portion between 80% and 95%. If a borrower gets into financial difficulty and their property is repossessed, the government will cover a chunk of the lender's losses. So a family buying a £300,000 home would be able to put down a 5% deposit and take out a 95% mortgage for the rest. That means they would be borrowing £285,000, of which the first £45,000 would be covered by the government guarantee. | The government will make available £12bn of guarantees to lenders – enough, it believes, to support £130bn of mortgages where a deposit of as little as 5% is required. Lenders who offer low-deposit mortgages will have the opportunity to buy a guarantee on the "top slice" of the mortgage – the portion between 80% and 95%. If a borrower gets into financial difficulty and their property is repossessed, the government will cover a chunk of the lender's losses. So a family buying a £300,000 home would be able to put down a 5% deposit and take out a 95% mortgage for the rest. That means they would be borrowing £285,000, of which the first £45,000 would be covered by the government guarantee. |
| The first part of the scheme, involving loans to help homebuyers acquire new-build houses only, was launched in April, and was recently declared "an instant hit" by the Department for Communities and Local Government. | The first part of the scheme, involving loans to help homebuyers acquire new-build houses only, was launched in April, and was recently declared "an instant hit" by the Department for Communities and Local Government. |
| Ministers have now disclosed some of the rules for the second part, which they said were designed to ensure responsible lending and borrowing. For example, someone with a county court judgment against them for more than £500, and related to the previous three years, would be barred. Those who apply will be subject to income checks and "stress testing" to ensure they can afford the guaranteed loans, but it is rumoured that, contrary to the original proposals, they will not have to pass a credit score test. | Ministers have now disclosed some of the rules for the second part, which they said were designed to ensure responsible lending and borrowing. For example, someone with a county court judgment against them for more than £500, and related to the previous three years, would be barred. Those who apply will be subject to income checks and "stress testing" to ensure they can afford the guaranteed loans, but it is rumoured that, contrary to the original proposals, they will not have to pass a credit score test. |
| It is understood a 50-page document outlining the proposed rules was distributed at the meeting, but that those present were told not to share it with the media or other parties. | It is understood a 50-page document outlining the proposed rules was distributed at the meeting, but that those present were told not to share it with the media or other parties. |
| Some commentators claimed the government should not be underwriting mortgages in this way, and that the scheme risked driving up prices. | Some commentators claimed the government should not be underwriting mortgages in this way, and that the scheme risked driving up prices. |
| Graeme Leach, chief economist at the IoD, said: "The housing market needs help to supply, not help to buy, and the extension of this scheme is very dangerous … the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages." | Graeme Leach, chief economist at the IoD, said: "The housing market needs help to supply, not help to buy, and the extension of this scheme is very dangerous … the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages." |
| The Liberal Democrat peer Lord Oakeshott said: "Public money and guarantees should ramp up public housebuilding, not private house prices. Osborne is pouring fuel on the flames of an overheating housing market in the south-east. At this rate couples with no capital from their parents are as likely to be homeowners as heirs to the throne." | The Liberal Democrat peer Lord Oakeshott said: "Public money and guarantees should ramp up public housebuilding, not private house prices. Osborne is pouring fuel on the flames of an overheating housing market in the south-east. At this rate couples with no capital from their parents are as likely to be homeowners as heirs to the throne." |
| The shadow housing minister, Jack Dromey, said that while any help for first-time buyers was to be welcomed, "there is now widespread criticism that this scheme will do little to bring the cost of housing within the reach of low- and middle-income earners". | The shadow housing minister, Jack Dromey, said that while any help for first-time buyers was to be welcomed, "there is now widespread criticism that this scheme will do little to bring the cost of housing within the reach of low- and middle-income earners". |
| Michael Pearce, assistant economist at Capital Economics, said the risk for the chancellor was that Help to Buy "reinflates the house price bubble that the UK saw in the runup to the 2008 recession (which still has not fully deflated), that could pop before the election". | Michael Pearce, assistant economist at Capital Economics, said the risk for the chancellor was that Help to Buy "reinflates the house price bubble that the UK saw in the runup to the 2008 recession (which still has not fully deflated), that could pop before the election". |
| The Homeowners Alliance, a consumer campaign group for property owners and would-be buyers, said that if the scheme was allowed to drive up house prices "it could cause a bubble and encourage people to take on huge mortgages that could be devastating in the long run". | The Homeowners Alliance, a consumer campaign group for property owners and would-be buyers, said that if the scheme was allowed to drive up house prices "it could cause a bubble and encourage people to take on huge mortgages that could be devastating in the long run". |
| The need for a clear exit strategy was raised by several commentators. The scheme is due to run for three years, and the Council of Mortgage Lenders, representing banks and building societies, warned that market disruption can occur when there are "bulges of activity" in the runup to an end date. | The need for a clear exit strategy was raised by several commentators. The scheme is due to run for three years, and the Council of Mortgage Lenders, representing banks and building societies, warned that market disruption can occur when there are "bulges of activity" in the runup to an end date. |
| Lenders will have to pay a fee for each mortgage guaranteed, though a final decision on what this will be has yet to be announced. | Lenders will have to pay a fee for each mortgage guaranteed, though a final decision on what this will be has yet to be announced. |
| The first part of the scheme, which has been running alongside the government's Funding for Lending programme, has been credited with boosting the property market. Data issued on Tuesday by the British Bankers' Association revealed that the number of mortgages approved by UK banks for house purchases leapt by a third in June when compared with June 2012, to reach a 17-month high. A total of 66,917 mortgages were approved during the month, including 37,278 for house purchases and 20,478 for remortgagers. Both figures were 33% higher than in June 2012. | The first part of the scheme, which has been running alongside the government's Funding for Lending programme, has been credited with boosting the property market. Data issued on Tuesday by the British Bankers' Association revealed that the number of mortgages approved by UK banks for house purchases leapt by a third in June when compared with June 2012, to reach a 17-month high. A total of 66,917 mortgages were approved during the month, including 37,278 for house purchases and 20,478 for remortgagers. Both figures were 33% higher than in June 2012. |
| New mortgage lending has been buoyed by Funding for Lending, launched in August 2012, which has led to a price war on loans for borrowers with sizeable amounts of equity, and finally seems to have persuaded lenders to offer more loans at high loan to values (LTVs). | New mortgage lending has been buoyed by Funding for Lending, launched in August 2012, which has led to a price war on loans for borrowers with sizeable amounts of equity, and finally seems to have persuaded lenders to offer more loans at high loan to values (LTVs). |
| Top mortgages | Top mortgages |
| HSBC | HSBC |
| Post Office | Post Office |
| HSBC | HSBC |
| Provided by London & Country for the Guardian | Provided by London & Country for the Guardian |
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