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MPs warn Govt could face big Help to Buy losses

Andrew Tyrie BBA Conference 2012 480

The Treasury select committee has warned the Government it could face “large losses” under its Help to Buy scheme as it fails to take account of the “unintended consequences” of the programme.

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

Under the mortgage indemnity guarantee, set to launch in 2014 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 mortgage lending. If homes are repossessed and lenders lose a sum of money that is higher than the borrower’s deposit they can access Government guarantees meaning taxpayers will lose out.

The TSC report states: “There is a risk that if mortgage lenders begin to exercise reduced levels of forbearance, repossessions may rise and house prices are subsequently lower than they would otherwise be. If this happened, and unless this risk was fully priced into the fee, then 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 or help first-time buyers. MPs also warned that pressure to extend the scheme in three years’ time will be “immense” and there is a danger it will become permanent.

The TSC demanded more answers on Help to Buy with 19 detailed questions on whether people can buy second homes, the role of the financial policy committee and its views on the scarcity of high loan-to-value mortgages.

Elsewhere in the report, the TSC announced an inquiry into monetary policy as a result of the changing remit of the Bank of England unveiled at the Budget. Chancellor George Osborne gave the Bank a more flexible inflation target of 2 per cent while taking account of economic growth and opened the door to the long-term setting of interest rates.

TSC chair Andrew Tyrie says: “Any change to the remit has the scope to create uncertainty. Changes should not be frequent.

“In the light of the new remit announced, the committee will launch an inquiry into monetary policy. Future remit changes should require parliamentary approval.”

The TSC also warns the end of contracting-out may result in the closure of some pension schemes and it calls for the Office for Budget Responsibility to publish an assessment on the success of new anti-tax avoidance measures.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Can we see the back of the envelope that this plan was written on?

    Wouldn’t it have been an idea for the Chancellor and the Treasury to have actually thought through this idea first, before launching it in a blaze of headlines simply to try and score political points?

    I suppose, deep down, Osbornes plan is to try and create a house price boom in time to make everyone feel good before the next election, and then somehow blame the previous Labour Government, the unions and the weather when the scheme crashes midway through the next parliament.

  2. The only beneficiaries in these scams, sorry schemes, are the developers, the landowners, and the mortgage advisers and lenders.

    The poor unsuspecting purchasers will have to wait for the muck to hit the fan.

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