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 this week, Osborne said the housing market was not working effectively, with house prices down by a quarter from their peak and mortgage availability 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.
“90 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 set up as repayment mortgages and not interest-only, which he says will allow borrowers to build up equity irrespective of price growth.
Coreco director Andrew Montlake says: “People think 95 per cent LTVs are to blame for society’s ills, but this is not the case, as long as these mortgages are underwritten properly and targeted at the right kind of borrowers.”