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| Help to Buy will not drive up house prices, says minister | Help to Buy will not drive up house prices, says minister |
| (4 months later) | |
| People who think there is a housing bubble "need to get out more", a Treasury minister has said, as he defended the Help to Buy scheme on its launch day. | People who think there is a housing bubble "need to get out more", a Treasury minister has said, as he defended the Help to Buy scheme on its launch day. |
| Danny Alexander, the chief secretary to the Treasury, dismissed concerns that the scheme offering 95% mortgages backed by the state will push up house prices too much. | Danny Alexander, the chief secretary to the Treasury, dismissed concerns that the scheme offering 95% mortgages backed by the state will push up house prices too much. |
| He told Sky News that those criticising the scheme "need to get out more" to areas of the country where house prices were not rising quickly. | He told Sky News that those criticising the scheme "need to get out more" to areas of the country where house prices were not rising quickly. |
| Alexander's comments are a direct challenge to the Commons Treasury committee, which warned the scheme could pose a threat to financial stability, and Vince Cable, the business secretary and a Liberal Democrat colleague, who also has reservations. | Alexander's comments are a direct challenge to the Commons Treasury committee, which warned the scheme could pose a threat to financial stability, and Vince Cable, the business secretary and a Liberal Democrat colleague, who also has reservations. |
| As RBS and NatWest opened their doors to the first Help to Buy customers, Alexander said the scheme was needed to help people afford their own homes. | As RBS and NatWest opened their doors to the first Help to Buy customers, Alexander said the scheme was needed to help people afford their own homes. |
| "I don't see this housing boom that's going on that some of those commentators seem to imply," he told the BBC during a round of broadcast interviews. | "I don't see this housing boom that's going on that some of those commentators seem to imply," he told the BBC during a round of broadcast interviews. |
| "The average rate of house price increase over the last 12 months is 0.8% when you take out London and the south-east; 3.3% if you include London and the south-east. In very high-price parts of the country, like Kensington and Chelsea, for example, you are seeing a much more active market, but in that case 70% of those transactions are above the £600,000 cutoff level that we've set in the scheme. | "The average rate of house price increase over the last 12 months is 0.8% when you take out London and the south-east; 3.3% if you include London and the south-east. In very high-price parts of the country, like Kensington and Chelsea, for example, you are seeing a much more active market, but in that case 70% of those transactions are above the £600,000 cutoff level that we've set in the scheme. |
| "So I think we should be very careful not to tar the rest of the country with the brush of central London, which is where so many of the people commenting on this also live and work." | "So I think we should be very careful not to tar the rest of the country with the brush of central London, which is where so many of the people commenting on this also live and work." |
| David Cameron promised the Help to Buy scheme would help thousands of people to "put down roots and raise a family" by allowing them to buy a house worth up to £600,000 with a deposit of just 5%. The government will guarantee up to 15% of the loan, in return for a fee from the lender, potentially lowering the average deposit needed from more than £40,000 to just over £10,000. | David Cameron promised the Help to Buy scheme would help thousands of people to "put down roots and raise a family" by allowing them to buy a house worth up to £600,000 with a deposit of just 5%. The government will guarantee up to 15% of the loan, in return for a fee from the lender, potentially lowering the average deposit needed from more than £40,000 to just over £10,000. |
| However, the launch of the scheme was overshadowed by a warning from the chairman of the Commons Treasury select committee, Andrew Tyrie, who said any mistakes in the scheme could "carry threats to financial stability". | However, the launch of the scheme was overshadowed by a warning from the chairman of the Commons Treasury select committee, Andrew Tyrie, who said any mistakes in the scheme could "carry threats to financial stability". |
| He is one of many senior politicians, including Cable, who fear the scheme could cause problems, such as a fresh housing bubble. | He is one of many senior politicians, including Cable, who fear the scheme could cause problems, such as a fresh housing bubble. |
| Despite these fears, RBS and NatWest are launching their first offers on Tuesday with "no fee" deals attracting interest rates of 4.99% for two years or 5.49% for five years. Experts said the rates appear to be well-priced even though there are already a few deals on the market for 95% mortgages. Halifax and Bank of Scotland will be ready for the scheme by the end of the week, while Virgin Money and Aldermore Bank plan to begin their offers next year. | Despite these fears, RBS and NatWest are launching their first offers on Tuesday with "no fee" deals attracting interest rates of 4.99% for two years or 5.49% for five years. Experts said the rates appear to be well-priced even though there are already a few deals on the market for 95% mortgages. Halifax and Bank of Scotland will be ready for the scheme by the end of the week, while Virgin Money and Aldermore Bank plan to begin their offers next year. |
| On Monday night, the prime minister launched a firm defence of the scheme as a way to help "people who can afford the monthly mortgage payments but haven't got rich parents and can't pay the deposit up front". | On Monday night, the prime minister launched a firm defence of the scheme as a way to help "people who can afford the monthly mortgage payments but haven't got rich parents and can't pay the deposit up front". |
| "There is a need for government to act," he said. "Buying your first home is about far more than four walls to sleep at night. It's somewhere to put down roots and raise a family. It's an investment for the future. Above all, it's a sign that everything you've put in has been worth it." | "There is a need for government to act," he said. "Buying your first home is about far more than four walls to sleep at night. It's somewhere to put down roots and raise a family. It's an investment for the future. Above all, it's a sign that everything you've put in has been worth it." |
| George Osborne, the chancellor, said the scheme was aimed at "those families that have saved for years" and young people who should have "the same chance of getting on the property ladder as their parents and grandparents". | George Osborne, the chancellor, said the scheme was aimed at "those families that have saved for years" and young people who should have "the same chance of getting on the property ladder as their parents and grandparents". |
| Speaking at an event in east London, the deputy prime minister, Nick Clegg, dismissed concerns that the scheme would make the problem of the "overheated" property market in the capital worse. | Speaking at an event in east London, the deputy prime minister, Nick Clegg, dismissed concerns that the scheme would make the problem of the "overheated" property market in the capital worse. |
| He said: "I don't believe that this second part of the Help to Buy scheme is suddenly going to make that escalation in London prices qualitatively worse. That's already happening. | He said: "I don't believe that this second part of the Help to Buy scheme is suddenly going to make that escalation in London prices qualitatively worse. That's already happening. |
| "But – a big but – of course we need to be vigilant, of course we need to moderate it, even turn it off if we think that it is not appropriate and is providing inappropriate stimulation to the housing market. | "But – a big but – of course we need to be vigilant, of course we need to moderate it, even turn it off if we think that it is not appropriate and is providing inappropriate stimulation to the housing market. |
| "That is precisely why we have transferred the right to do that to the Bank of England so that they can keep an eye on it – not politicians, not George Osborne, not the Treasury – they can look at, if they don't think it's working, or it's inappropriate, they can change it or even recommend that it's stopped altogether." | "That is precisely why we have transferred the right to do that to the Bank of England so that they can keep an eye on it – not politicians, not George Osborne, not the Treasury – they can look at, if they don't think it's working, or it's inappropriate, they can change it or even recommend that it's stopped altogether." |
| The Tories brought forward the launch of the scheme by three months at their autumn conference last week, despite a string of warnings about its potential effect on house prices. | The Tories brought forward the launch of the scheme by three months at their autumn conference last week, despite a string of warnings about its potential effect on house prices. |
| Treasury ministers have tried to head off concerns about a house price bubble by saying they will hold annual reviews to make sure the scheme is operating safely. However, the Treasury committee warns the government has yet to allay concerns about how the guarantee scheme will run and end. | Treasury ministers have tried to head off concerns about a house price bubble by saying they will hold annual reviews to make sure the scheme is operating safely. However, the Treasury committee warns the government has yet to allay concerns about how the guarantee scheme will run and end. |
| It said the Bank of England must be allowed to put the brakes on the Help to Buy scheme at any time if it threatens a dangerous housing bubble, rather than simply being subject to a review once a year. The MPs said they were concerned that the primary effect of the scheme "could be to raise house prices rather than to stimulate new supply". | It said the Bank of England must be allowed to put the brakes on the Help to Buy scheme at any time if it threatens a dangerous housing bubble, rather than simply being subject to a review once a year. The MPs said they were concerned that the primary effect of the scheme "could be to raise house prices rather than to stimulate new supply". |
| "Given the chequered history of government interventions in residential property, great care will need to be taken in both the construction and running of this scheme," Tyrie warned. "Mistakes could distort the housing market or carry threats to financial stability." | "Given the chequered history of government interventions in residential property, great care will need to be taken in both the construction and running of this scheme," Tyrie warned. "Mistakes could distort the housing market or carry threats to financial stability." |
| Although the scheme is only set to run for three years, the commitee said the government could also come under "immense" political pressure to extend it if it proves popular. | Although the scheme is only set to run for three years, the commitee said the government could also come under "immense" political pressure to extend it if it proves popular. |
| The scheme has already fuelled a surge in interest from homebuyers, pushing up prices across the country, according to a wide-ranging survey of estate agents. A monthly report from the Royal Institution of Chartered Surveyors (Rics) said prices in September were up for a fifth consecutive month as buyers return to the market in their biggest numbers for four years. Banks are even extending their opening hours in anticipation of extra demand. | The scheme has already fuelled a surge in interest from homebuyers, pushing up prices across the country, according to a wide-ranging survey of estate agents. A monthly report from the Royal Institution of Chartered Surveyors (Rics) said prices in September were up for a fifth consecutive month as buyers return to the market in their biggest numbers for four years. Banks are even extending their opening hours in anticipation of extra demand. |
| David Hollingworth, of London & Country Mortgages, said the NatWest and RBS rates are "certainly well priced against the meagre competition in the market at the moment". | David Hollingworth, of London & Country Mortgages, said the NatWest and RBS rates are "certainly well priced against the meagre competition in the market at the moment". |
| "The scheme's aim was to offer more choice and at better rates, so these deals do seem to tick the boxes," he said. "It's now a case of seeing if they are low enough to attract borrowers to the market in increased numbers." | "The scheme's aim was to offer more choice and at better rates, so these deals do seem to tick the boxes," he said. "It's now a case of seeing if they are low enough to attract borrowers to the market in increased numbers." |
| The Treasury fees for offering the scheme to banks and building societies will work on a sliding scale depending on the loan-to-value ratio of the mortgage being offered. The highest charge will be on 95% loans, as these pose the biggest risk of going wrong. It has been reported that lenders could pay around 0.9% of the total amount, being borrowers, to guarantee a slice of the loan equivalent to 15% of the purchase price. On a mortgage of £150,000, that would cost the lender £1,350 to guarantee £23,700. The fees may end up being passed on to customers. | The Treasury fees for offering the scheme to banks and building societies will work on a sliding scale depending on the loan-to-value ratio of the mortgage being offered. The highest charge will be on 95% loans, as these pose the biggest risk of going wrong. It has been reported that lenders could pay around 0.9% of the total amount, being borrowers, to guarantee a slice of the loan equivalent to 15% of the purchase price. On a mortgage of £150,000, that would cost the lender £1,350 to guarantee £23,700. The fees may end up being passed on to customers. |
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