Lenders’ trade body agrees with the Governor and stresses Help-to-Buy should be temporary

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.

12 thoughts on “Lenders’ trade body agrees with the Governor and stresses Help-to-Buy should be temporary”

  1. therrawbuzzin says:

    On a side note:
    How do UK banks justify charging such exorbitant rates on loans, when they pay so little for the money themselves?
    Shut up little man and pay.

    1. Pavlaki says:

      Even more disgraceful – I have had two banks write to me and say that they are reducing the interest paid on my accounts by 0.25%. I went in to one of hem and asked if they were reducing their loan rate by 0.25% as well. Surprise, surprise they are not. I suggested that this was a cynical ploy ahead of the expected 0.25% rate rise by the B of E at which point they will raise both their deposit and loan rate by the said amount ‘to reflect changes in the market’. Meanwhile widening their margin. To be fair to the local manager he did agree (or did not disagree) that this probably was the case but that he was not responsible for setting the interest rate. And the banks wonder why we hate them?

    2. Anonymous says:

      Hi therrawbuzzin

      This was one of my earliest themes as I wrote about the gap between official and unofficial interest-rates back on the 14th of December 2009. It is easily forgotten now but there was a phase back then when savings rates decoupled too but as Pavlaki points out below banks have successively chipped away at that one. Meanwhile if we look at the Bank of England’s effective interest-rate for credit cards it was 15% as we began 2008 and was 17.33% in May or higher. So it looks ever more like a bankocracy…

  2. Pavlaki says:

    If EU accounts are seen as the gold standard then it doesn’t say much for standards!!

  3. Anonymous says:

    ExpatInBG, I noticed that one of the FT stories on this Bulgarian bank linked it to the controversy over the South Stream pipeline. My wife Sonja told me that Sergei Lavrov was just visiting Serbia, possibly to shore up support for the South Stream, and that US VP Joe Biden had sent a message to Serbs to tell them that America was always their friend.

    To what extent do you think the elections in Bulgaria will focus on South Stream as opposed to other issues?

  4. Anonymous says:

    Hi ExpatInBG

    From a UK perspective “The EU is very popular here because it’s accounts are seen as a model of probity and honesty” seems a bit like something from Alice through the looking glass! But I understand from what I have read and from your past comments/references that corruption is a big problem in Bulgaria.

    How is this bank collapse being reported in the Bulgarian media. Is there a free press or is it hamstrung?

  5. Anonymous says:

    Hi Pavlaki,

    It’s all relative. Britons tend to view EU politicians as less honest than their domestic variety.

    All politicians need open scrutiny by a robust independent press. The best politicians delegate by crowdsourcing decisions using public referendums.

  6. Anonymous says:

    Hard for me to say how much the press is restricted. Luckily most of the political parties have one or several outlets. Dnevnk (associated with centre right opposition) printed credible reports about the last disputed election including official voting statistics at Gypsy polling stations of 98% vote to BCP(communists) and local supermarkets full of gypsies spending 30 leva. novinite and the party of European socialists in Brussels IGNORED this vote buying story.

    Hence the press sort of works, read both sides and readers need to remember who owns the brand and take the pinch of salt …

    Murdoch’s press isn’t 100% free of managerial interference either.

  7. Anonymous says:

    I see no press coverage about south stream. There are 4 parties in parliament. BCP(communists) supported by pensioners and unbelievably high 98% in many gypsy polling booths. Ataka – Fascists and racists. MRP – Ethnic Turks party that mostly functions as patronage engine for it’s founder. GERB centre right opposition.

    GERB was previous administration, less that perfect but who managed to build many new motorways and roads. They did an excellent job of balancing the budget. See Wikileaks comments on Boiko Borisov.

    Current administration had it’s first interior ministry candidate (Peevski) rejected by massive anti-oligarchy protests and NATO partner objections. Current administration is a coalition of supposedly sworn enemies (communists and fascists), (Turks and racist Fascists).
    I see zero new road building by current administration and assume the only thing these coalition partners share is a desire to steal public money.

    BCP leader is Moscow educated Sergei Stanishev – my grandfather’s generation would have described him as a fifth columnist. BCP was responsible for hyperinflation, currency dis-integration, and impoverishment of the country. I am amazed anyone still votes for them.

  8. Anonymous says:

    I would joke that the Bulgarian promotional material needed for South Stream is brown paper bags for politicians

  9. Anonymous says:

    Thank you very much for the detailed backgrounder, ExpatInBG. You’re a buddy!

  10. Anonymous says:

    you’re welcome. Sadly almost anything I can say about Bulgaria’s economy quickly strays into politics which Shaun tries to avoid.

    The IMF mandated currency board has worked remarkably well, I note with unhappiness that Bulgaria is issuing more bonds, the BCP overspent in 1996 and wrecked the old currency. The same BCP are remarkably slow to learn any lessons about overspending. Despite spending more – they haven’t improved living standards and their roadworks program is invisible. (Unlike Serbia who are noticably working on the Nis-Pirot highway).

    Where does the BCP/Ataka/MRP spending go ?

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