George Osborne’s £12bn scheme to help first-time buyers could backfire by creating a housing bubble and distorting the economic recovery, MPs warned the Chancellor last night.
The Treasury Select Committee raised a serious warning over the Help to Buy initiative, under which the taxpayer will guarantee up to 15 per cent of mortgages on homes worth as much as £600,000. Mr Osborne will launch the scheme with Prime Minister David Cameron by announcing that NatWest and RBS are to start offering Help to Buy mortgages today. They will be followed by Halifax and Bank of Scotland by the end of the week. Under the scheme, buyers will only need a deposit of as little as 5 per cent of a property’s sale price to obtain a mortgage.
The committee said the effect of the initiative, which is due to run for three years, could be to “raise house prices rather than stimulate new supply”.
The MPs warned: “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. Mistakes could distort the housing market or carry threats to financial stability. The Government has yet to allay the committee’s concerns about the Help to Buy mortgage guarantee scheme. It may not have the effects intended....”
The MPs said that when the initiative runs out, “the government of the day will face strong incentives to extend the scheme, with the attendant risk that the mortgage guarantee scheme becomes a permanent feature of the UK mortgage market”.
The Prime Minister announced at last week’s Tory conference that the scheme was being introduced three months earlier than intended to help millions of young people who are “desperate to buy”. Mr Cameron said last night: “Help to Buy is going to make the dream of home ownership a reality for many who would otherwise have been shut out. This goes right to the heart of my vision for Britain – a country where everyone who works hard can get on in life.”
It also emerged that the Treasury could make a profit from the scheme by charging banks up to 0.9 per cent for insuring losses on mortgages under the scheme. This could theoretically make hundreds of millions for the Treasury. Chris Leslie, the shadow Chief Secretary to the Treasury, said: “If Ministers are serious about helping first-time buyers they should bring forward investment to build more affordable homes... house-building is at its lowest level since the 1920s.”