Chancellor insists that 95% mortgages underwritten by Government are Part Of A Healthy Property Market
The Chancellor of the Exchequer, George Osborne has hailed the wider recovery of the UK’s economy and taken a swipe at the critics of his housing policies, insisting that large home loans are part of a “healthy market” and “aspirational society”.
Several Government schemes have been announced since the start of the year aimed to get banks and mortgage lenders to increase both the availability and affordability of mortgages in the UK.
The Government’s Help-To-Buy scheme has been the most controversial, because the Government underwrites high loan-to-value (LTV) mortgages, removing some of the risk from mortgage lenders, enabling them to offer cheaper mortgage loans to borrowers who only have small value deposits.
The financial incentive has drawn criticism from all quarters of the House of Commons and from business leaders around the UK, including vociferous comments made by Business Secretary Vince Cable and heavy criticism from some mainstream mortgage lenders themselves.
Exotic Weapons Of Financial Mass Destruction
But the Chancellor said in his speech last Monday that the average loan-to-value (LTV) ratio for first-time homebuyers had fallen from 90% to 80%., stating: “That is why the Government’s Help to Buy scheme is a sensible, time-limited and necessary financial intervention to fix a specific financial problem: the dramatic reduction in the availability of high LTV mortgages.”
His defence of the Help-To-Buy scheme comes after some economists warned that borrowing heavily now, when rates are as low as they are ever likely to be, may not be wise. But Mr Osborne insisted the introduction of the Help-To-Buy scheme was the correct policy approach, adding in respect of the post-crisis withdrawal of high LTV lending.
Mr Osborne said:”This change is not something we should welcome, it is both a market failure and a social problem – imagine if you’d had to find twice as big a deposit for your first home. 90% and 95% LTV mortgages are not exotic weapons of financial mass destruction. They are a regular part of a healthy mortgage market and an aspirational society.”
Very high LTV loans were previously viewed as symptomatic of the appetite for credit, ahead of the financial crisis that hit in 2007/8.
Mortgage lenders have since rallied to the Chancellor’s cause, downplaying the fear of another property price bubble and have stressed that the UK’s economic recovery is starting from a very low base.
Chief housing economist at the Halifax, Martin Ellis, last week predicted that “…relatively modest economic growth and below inflation rises in earnings are likely to act as a brake on the market. Overall, house prices are expected to rise gradually over the remainder of the year.”
However, as already reported, UK property prices are only increasing at a healthy and sustainable rate so far this year, with little likelihood of another property bubble.
The chief executive of Lloyds Banking Group, Antonio Horta-Osorio, also publicly commented on the Governments Help-To-Buy scheme, stating that: “It is the right thing at this time. The fact it is a temporary scheme will allow it to be withdrawn and not allow a housing bubble.”
What do you make of the Help-To-Buy scheme, has the introduction of this initiative enabled you to purchase property?
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