22nd May 2013
It is worth noticing when the trade organisation for the big mortgage banks points out that it agrees with the Governor of the Bank of England and wants the Help to Buy scheme announced in the last budget to be a temporary one.
This week the Governor warned that the Help to Buy scheme should not become a permanent feature of the mortgage landscape pointing out that the two US versions of the scheme Freddie Mae and Fannie Mac, permanent features of the US mortgage market until the financial crisis, had to be bailed out, comment reported by the BBC this week
In a note issued today, that is what the CML agrees that the scheme should not be permanent. The warning comes as it is clear some regions of the UK are escaping the mortgage doldrums. The headline figure, this week, was that an average house in London is now worth more than half a million pounds as City AM reported this week. This fueled fears that the scheme could fuel a boom rather than revive a flagging market.
The CML‘s director general, Paul Smee, told lenders in Wales on Friday that the industry needs to understand what constitutes success for the scheme – and the government’s exit strategy when Help to Buy is due to come to an end after three years.
Speaking at a CML Cymru lunch in Cardiff, Paul Smee acknowledged the merits of Help to Buy but highlighted the need for an “exit path.” Recalling the effects of the stamp duty holiday which ended in March 2012, the CML director general continued: “Schemes which end in a cliff edge distort the market and tend to create a bubble on one side and a desert on the other.”
Paul Smee’s speech to lenders coincided with the views of outgoing Bank of England governor, Sir Mervyn King. In a television interview at the weekend, Sir Mervyn said that the UK did not need a scheme providing permanent help to borrowers but the return of a “healthy mortgage market with competing lenders attracting borrowers.”
Smee added: “I would really like to be clear on what constitutes success for the government and what its exit strategy from the scheme will be after three years…The emphasis on creditworthy borrowers is noted and helpful…That must be reflected in the target which the government sets for the scheme and by which it judges success. There is no point with one hand affirming a belief in the maintenance of high lending standards and with the other imposing targets requiring a laxer attitude to be taken.”
Help to Buy, which was unveiled in the Budget, will see the government guarantee up to 15% of a mortgage on properties worth up to £600,000. It is due to run for three years from January 2014.