Chancellor George Osborne says the lack of 95 per cent loan to value mortgages is a “social problem” as he launched a fierce defence of the Help to Buy scheme and high loan-to-value deals.
Speaking in London today, Osborne said the housing market was not working effectively, given house prices are down by a quarter from their peak and mortgage availability is running at only half pre-crisis levels.
He said: “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.
“The median LTV for first-time buyers has fallen from a long term average of 90 per cent to just 80 per cent now.
“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 per cent and 95 per cent LTV mortgages are not exotic weapons of financial mass destruction. They are a regular part of a healthy mortgage market and an aspirational society.”
The scheme has come under strong criticism over fears it may fuel another housing boom and artificially boost prices.
Osborne said it is important all Help to Buy deals are repayment mortgages and not interest-only, which he says will allow borrowers to build up equity irrespective of price growth.
He also claimed high LTV deals are crucial to boosting housing supply and argues Help to Buy will cause a major boost to building.
Osborne also said the economy is “turning the corner” and his fiscal plans had worked while dismissing claims the recovery is built on house price growth and consumer spending.
He praised the launch of TSB Bank on the high street today, claiming the Government has overseen the biggest ever overhaul of banking in response to the financial crisis.