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Last updated: October 8, 2013 9:39 am
The UK government defended its flagship housing policy on Tuesday as the official launch of the second phase of its Help to Buy mortgage scheme was overshadowed by a warning that it risked kindling a destabilising housing boom.
Danny Alexander, chief secretary to the Treasury, said the subsidy for some home buyers – which will enable them to borrow up to 95 per cent of the property’s value – was necessary to aid first-time purchasers who could not afford a big deposit.
“A housing market has got to be open to a wide range of people,” he told the BBC’s Today programme.
Amid warnings from various commentators that the subsidy would drive prices higher by stimulating demand without solving supply problems, he said there were no signs of a boom outside London and southeast England.
“I don’t see this housing boom going on that some of those commentators seem to imply,” he said.
“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 who are commentating on this also live and work,” he added.
On Tuesday HSBC announced that it would join the scheme later this year. Other new additions to the roster of lenders include Virgin Money and Aldermore Bank.
However, the Commons Treasury select committee on Tuesday said the programme, which could underwrite up to £130bn of mortgages, was likely to “raise house prices rather than stimulate new supply”.
Andrew Tyrie, the Tory chair of the Treasury committee, highlighted the “chequered history” of government interventions in residential property, saying that “mistakes could distort the housing market or carry threats to financial stability”.
The Royal Institution of Chartered Surveyors on Tuesday reported that last month the average number of properties sold per chartered surveyor hit 18.7 – its highest level since November 2009 although still below the historical average.
Prices rose across every region of the UK except for the North East. Rics said the industry was now more confident that prices would rise across England and Wales over the next three months than at any point in the last 10 years.
The poll showed surveyors’ optimism over prices being fuelled by substantial growth in new buyer inquiries on the back of the government’s Help to Buy scheme.
RBS said hundreds of would-be homebuyers had registered their interest in the scheme over the past week ahead of its launch. The bank will extend its branch opening hours for two weeks from next week to cope with expected demand.
RBS will offer fixed mortgages under Help to Buy at 4.99 and 5.49 per cent, competitive when compared with similar 95 per cent deals in the market, but much higher than deals available to those with big deposits.
Estate agents said sellers were already reacting to the government’s decision to bring forward phase two of the Help to Buy scheme, with many considering increasing their asking price.
“The imbalance of supply and demand requires an increase in supply not further stoking of demand. I have 40 per cent less houses to sell than last year but 1,000 extra buyers to sell to already,” said Sam Mitchell, regional director at estate agent Your Move.
The Treasury on Tuesday set out the terms under which it will underwrite mortgages on homes – new-build or old – worth up to £600,000.
The government will charge banks a one-off fee of 0.3-0.9 per cent on each home loan, which could mean a windfall to the Treasury of hundreds of millions of pounds.
Labour asked how much the Treasury planned to “pocket” in fees. But officials said the exchequer did not expect to make an overall profit on the scheme after administration fees and defaults.
The chancellor recently brought the second phase of the scheme forward by three months and promised safeguards to prevent it spinning out of control. The Financial Policy Committee of the Bank of England will every year examine elements of the initiative and assess if they need to be revised.
But the Treasury committee warned of the danger of unintended consequences from the scheme which could become a “permanent feature” of the mortgage market despite its three-year shelf life.
“The political pressure to extend the scheme could be immense. It is therefore all the more important that the FPC’s role be clarified as soon as possible,” said Mr Tyrie.
Additional reporting by Adam Jones
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