The government’s Help to Buy mortgage guarantee scheme does not pose “material risks” to financial stability under current market conditions, the Bank of England governor has said.
Writing to chancellor George Osborne on behalf of the Bank of England’s Financial Policy Committee, Mark Carney said: “Under current market conditions, the committee assesses that the scheme does not pose material risks to financial stability, either directly or through its impact on the wider housing market.”
The governor claimed that the scheme had prompted lenders to re-enter the market for mortgages at 90 per cent loan to value and above with “many, though not all, major lenders participating”, but said lending volumes “remain small relative to experience before the financial crisis”.
He added that the effect of the mortgage market review, which came into force in April, and the fact that loans under the mortgage guarantee scheme had been capped at 4.5 times income, meant the risk of unaffordable loans being made had been “curtailed”.
| Month | Number of completions | Value of Help to Buy guarantee | Value of mortgage loans |
| October 2013 | 4 | £0m | £1m |
| November 2013 | 164 | £3m | £21m |
| December 2013 | 818 | £17m | £112m |
| January 2014 | 1581 | £33m | £226m |
| February 2014 | 2096 | £45m | £307m |
| March 2014 | 2658 | £56m | £384m |
| April 2014 | 3325 | £69m | £479m |
| May 2014 | 4026 | £84m | £584m |
| June 2014 | 3892 | £82m | £569m |
| Total to end of June 2014 | 18,564 | £388m | £2.683bn |
Source: HM Treasury
According to the 11-page Treasury document Help to Buy: Mortgage Guarantee Scheme Quarterly Statistics, covering recent data from the scheme as well as general progress from its 8 October 2013 launch to 30 June 2014, a total of 18,564 mortgages were completed with its support in the first nine months.
According to the document 14,654 of these – 79 per cent of the total – were first-time buyers.
Under the scheme, lenders can purchase a government guarantee on mortgage loans where the borrower has a deposit of between 5 and 20 per cent.
The guarantee – which does not apply to properties with a value of more than £600,000, buy-to-let mortgages or second homes – compensates the lenders for part of their net losses in the event of a repossession.
Paul Smee, director general of the Council of Mortgage Lenders, said that Help to Buy was “reaching its intended target, but not stoking disproportionate levels of activity in low-deposit lending nor acting as any significant influence on house prices”.
Mr Carney’s assessment came as the FPC asked the Treasury to give it new powers so that the committee could act to maintain the stability of the housing market if necessary.
In the 62-page document Financial Policy Committee Statement on Housing Market Powers of Direction from its Policy Meetings, 26 September 2014, the FPC called on the Treasury to allow it to require regulated lenders, if necessary, to put “limits on residential mortgage lending, both owner-occupied and buy-to-let” using LTV ratios and debt-to-income ratios, including interest coverage ratios for buy-to-let.
Adviser view
Mike Richards, director of London-based Mortgage Concepts Associates, said: “I do not think enough has been lent under the scheme to really worry about.”
