Bank of England review confirms that Help to Buy supports responsible lending
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Bank of England Governor Mark Carney and the Financial Policy Committee (FPC) confirm that the government’s Help to Buy mortgage guarantee scheme, does not pose a material risk to financial stability.
Today (2 October 2014), Bank of England Governor Mark Carney and the Bank’s independent Financial Policy Committee (FPC) has confirmed that the government’s Help to Buy mortgage guarantee scheme, which is helping hardworking taxpayers get onto or up the housing ladder, does not pose a material risk to financial stability and is not contributing materially to house price growth.
To ensure the ongoing stability of the UK housing market, the Chancellor asked the FPC to work with him every September to assess the ongoing impact of the Help to Buy scheme and to advise him on whether the key parameters of the scheme—the house price cap and the fee charged to lenders—remain appropriate. The FPC also confirmed this today.
In a letter to the Chancellor, published today, Mr Carney concluded that:
“There has been strong house price growth in some regions but, in the Committee’s judgement, the scheme does not appear to have been a material driver of that growth.”
In today’s response to Bank of England Governor Mark Carney, the Rt. Hon George Osborne, Chancellor of the Exchequer, said:
I was pleased to see the committee’s conclusions that the scheme does not pose material risks to financial stability in the UK and has not been a material driver of recent house price growth.
[This is backed up by] Official Statistics on the use of the scheme published on 2 September confirm that the scheme continues to support responsible lending to first-time buyers across all regions of the UK on properties well below the average UK house price.
These figures demonstrate that Help to Buy is helping hardworking taxpayers onto the housing ladder across the country as part of the government’s long-term economic plan. The average house price in Help to Buy mortgage guarantee scheme was £153,800, significantly below the national average, and buyers were spread out across the country, with 94% outside of London. The scheme has helped first time buyers in particular, who have accounted for 79% of the 18,000 scheme completions to the end of June 2014.
The FPC also confirmed that the scheme supports responsible lending, noting that:
“The latest data gives no evidence of looser underwriting standards within the scheme than on wider lending” and that “Help to Buy loans do not seem to have driven an increase in average mortgage tenors for the high LTV market since the launch of the scheme.”
This has been further supported by new rules for lenders participating in the scheme which came into force yesterday. In a recent speech the Chancellor announced that mortgage lending limits introduced by the Bank of England would apply to all Help to Buy mortgage guarantee loans. All new mortgage guarantee loans must therefore have a loan to income ratio of less than 4.5.