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Govt could face big losses on Help to Buy, MPs warn

Andrew Tyrie BBA Conference 2012 480

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The Treasury select committee has slammed the Government’s Help to Buy mortgage indemnity guarantee, warning it could cause taxpayers significant losses and may not help first-time buyers or boost house building.

The TSC’s Budget 2013 report, published last week, expressed concern that the Treasury will have an active role in the mortgage market and a vested interest in rising house prices.

Under the MIG scheme, set to launch in 2014 and run for three years, 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 Government is offering £12bn-worth of guarantees to lenders to fund £130bn of lending. If homes are repossessed and lenders lose more than the borrower’s deposit, they can access Government guarantees. 

The TSC report states: “There is a risk that if mortgage lenders begin to exercise reduced levels of forebearance, repossessions may rise and house prices will subsequently be lower than they would otherwise be. If this happens, and unless this risk was fully priced into the fee, the Treasury could end up facing large losses on those mortgages it has guaranteed.”

The TSC also questioned Government assertions that the scheme will create more house building and help first-time buyers. MPs warned that pressure to extend the scheme in three years’ time will be “immense” and there is a danger it will become permanent.

Anderson Harris director Jonathan Harris says the scheme “is likely to push up prices because it is unlikely to increase the
number of houses being built”.

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