Homeowners struggling to meet their mortgage repayments and worrying that they had overpaid for the property they so desperately wanted:
that scenario was far from uncommon after the credit crunch. The house price bubble that had been building for years burst, leaving buyers who had purchased at the top of the market saddled with huge loans and the unlucky ones with expensive, fixed-rate mortgages. If those homeowners lost their jobs, they stood to lose their homes too.
Given that experience, it has been widely accepted that a return to ever-rising prices and ever higher loan-to-value (LTV) mortgages would be risky and unwise, so it is no wonder that the latest phase of the Government Help To Buy scheme, launched yesterday, has provoked criticism from industry experts who fear another house-price bubble.
The UK-wide scheme will allow buyers to obtain mortgages with a deposit of just 5% of the property value. The Government will then guarantee up to another 15% (for a fee from the bank concerned), meaning that if the buyer defaults and the house is repossessed, the Government will cover some of the lender's losses.
The Prime Minister insists that if London and the South East are removed from the equation, there are no signs at present of fever in the housing market but that could change, promptly.
The guarantee will be available on properties up to a value of £600,000, which seems surprisingly high.
Despite these reasons for caution, however, there is no doubt that, at present, the market is excluding many creditworthy would-be buyers. Having a secure job, and being able to meet mortgage repayments but being prevented from buying a home because of the lack of substantial savings is forcing many people to rent.
On balance, then, this scheme merits a cautious welcome. In addition to the Scottish Government's £220m shared-equity scheme, subsidising a 20% stake in purchases of new properties up to a value of £400,000, it will help aspirant purchasers. That said, stringent tests by lenders to ensure the creditworthiness of applicants will be crucial to preventing a rash of defaulting. The Chancellor has asked the Bank of England's Financial Policy Committee to review the price cap and fee to lenders annually, but that may prove too infrequent; what is more, if the scheme proves popular with voters, the Government might find that the economically prudent course -restricting or ending Help To Buy before its allotted three years are up - is politically unpalatable. Ministers must be prepared to do what is right for the economy overall, not act according to political expediency.
The real underlying problem facing many would-be homeowners is one of simple supply: there are not enough homes. A Help to Buy scheme in the context of a supply side shortage could help stimulate more building as the Prime Minister insists, or might set prices of existing properties on the rise. Most likely it will do both and must therefore be very closely watched.
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