Building Societies Association chairman David Webster has urged the Government to ensure its new £130bn mortgage indemnity insurance scheme does not become a permanent feature of the mortgage market.
Speaking today at the BSA’s annual conference in Harrogate, Webster called on the Government to form an “exit plan” to ensure it is not permanently supporting the mortgage market. He pointed to the situation in the United States during the 1930s where Fannie Mae was created by the Government to provide finance to local banks.
He said: “In the US, Fannie Mae was introduced in 1938 as a short-term means of increasing lending and broadening the spectrum of lenders during the Great Depression – that temporary scheme remained in place until it hit severe financial problems in 2008 – 70 years later. It is still a policy headache for the US administration.
“It seems to be very seductive for governments in the UK of all political shades to intervene to fix our housing market, but let’s hope we do not have to wait 70 years for the current set of fixes to be deemed redundant.”
His warning comes less than a month after the Treasury decided to extend the Funding for Lending scheme by a year to January 2015. It offers lenders cheap funding in exchange for maintaining or increasing their net lending.
As part of the Budget in March, chancellor George Osborne launched two measures, know collectively as Help to Buy, which build upon the Government’s existing mortgage indemnity and shared equity schemes, NewBuy and FirstBuy, respectively.
Osborne announced the creation of a new £130bn MIG scheme – first tipped by Money Marketing in February – which unlike NewBuy will be open to borrowers wanting to buy a new-build home or an existing property when it launches in January. As part of the scheme, the Government will offer a guarantee of up to 15 per cent of the purchase price, with the borrower putting down a deposit of between 5 and 15 per cent.
The chancellor also announced a £3.5bn commitment towards shared equity loans over the next three years which is expected to support up to 74,000 more homebuyers. This is an extension of the £500m shared equity scheme FirstBuy, which launched in 2011.
Webster also aimed a shot at the banks, saying there would be no need for the Help to Buy scheme if banks were lending to their potential. He added to his point by quoting the lending performance of building societies in 2012, in which the sector accounted for 88 per cent of all net mortgage lending in the UK – £6.5bn out of the £7.4bn.
Moreover, one in three mortgages from mutuals and building societies were made to a first time buyer in 2012 and 42 out of the 62 95 per cent LTV mortgages were offered by building societies, he said.
Webster added: “It is hard to avoid the thought that if other lenders were open for business in the same way that mutuals and building societies are, then this scheme would be redundant.”