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Government mortgage guarantee programme rolled out early

By Richard Johnstone in Manchester | 30 September 2013

The second phase of the government’s £130bn Help to Buy scheme to will be launched next week, three months earlier than planned, Prime Minister David Cameron has announced.

The programme, which will offer mortgage guarantees to people who are struggling to raise a deposit, will help thousands of people buy their first home or move into a bigger property, Cameron said.

The first stage of the scheme, announcing by Chancellor George Osborne in the March Budget, has provided government-backed loans of up to 20% to help people purchase newly built homes. Under the expanded programme, the Treasury will now provide guarantees of 15% of mortgages for all home purchases worth up to £600,000, reducing the lending risk to banks and building societies and cutting the required deposit for purchasers.

This second phase of Help to Buy was due to start in January 2014, however, Cameron announced yesterday, at the start of the Conservative Party conference in Manchester, that people would be able to start applying for the new mortgage guarantee from October 7.

He said that people with ‘a decent job’ and ‘decent earnings’ had been unable to buy a house or a flat, because they did not have the necessary deposit of up to £50,000.  ‘So we’re going to launch the Help to Buy scheme – it’s not coming in next year, it’s coming in next week, because I’m passionate about helping people who want to own their own flat or home,’ Cameron added.

The government has been warned that Help to Buy could fuel a bubble in house prices. However, the prime minister said the market was ‘recovering from a very low base’ and first-time buyers needed help to get on the housing ladder.

Cameron said people should ‘trust’ that the Bank of England would monitor the impact of the programme, and highlighted that, although annual house price inflation is around 3.3%, it is only 0.8% once London and the Southeast are removed from the equation.

The Bank’s Financial Policy Committee has been tasked by Osborne with monitoring the impact of the scheme, which is set to run for three years. Every September, the government and the committee will also review whether the fees or the price cap should be adjusted. Any move to expand it will also need the approval of the Bank.




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