Why You May End Up Footing the Bill for the Chancellor’s Large Mortgage Initiative

Over recent weeks, the Chancellor’s credibility has taken quite a hit. There have been revelations that a key paper justifying his austerity package contained fundamental errors and criticism from the IMF about his economic policy.

Now, a leading parliamentary committee has also criticised his Help to Buy scheme – the flagship policy of the 2013 Budget. The Treasury Committee has warned that the British taxpayer is set to face ‘large losses’ over the scheme which is designed to help the UK’s large mortgage and housing market.

Keep reading to find out more about why the taxpayer could end up footing the bill for the new initiative.

Scheme means the Treasury has a ‘financial interest’ in keeping house prices high

In his recent Budget, George Osborne announced that the government plans to vastly extend a state-backed mortgage guarantee scheme to support £130 billion of mortgages for families struggling to raise a deposit. He also committed a further £3.5 billion to shared-equity loans to buy new-build homes.

Now, the Daily Telegraph reports that ‘in a damning critique of the Budget’s Help to Buy initiative, the cross-party committee has outlined a two-page list of questions to Government demanding answers over the policy’s impact and rationale.’

Considering that the taxpayer will effectively become a guarantor for these mortgages, the Committee warned that the Government will find it ‘extremely difficult’ to price the fee charged to participating lenders in a way that sharply cuts the risk to the Treasury.

The committee were also concerned that the Treasury now has a ‘financial interest’ in keeping house prices from falling, in order to limit losses to the taxpayer.

“The Government’s Help to Buy scheme is very much work in progress,” said Andrew Tyrie, the Tory MP who chairs the Committee. “It may have a number of unintended consequences.”

Islay Robinson, CEO of London mortgage broker Enness Private Clients, said: “One of the potential problems with the Help to Buy scheme is that lenders could start to show less patience and sympathy towards homeowners struggling to maintain their repayments.

How will the chancellor’s large mortgage initiative affect you?

“This is likely to lead to a rise in repossessions and a fall in house prices, leading to large Treasury losses. Then, it will be the taxpayer that ends up footing the bill,” he added.

The Treasury committee also expresses concern about the ‘lack of clarity’ surrounding the firm details of the scheme. For example, there has been no confirmation of whether the scheme can be used to buy a second home, with MPs saying they ‘struggle to see the rationale for the taxpayer to stand behind’.

 A Treasury spokesman defended the initiative, saying: “Help to Buy is a targeted scheme designed to help people who aspire to own a home. By increasing mortgage availability it will support the construction of new homes and help to boost the economy.

 “All mortgages sold under Help to Buy will have to meet clear criteria that ensure responsible borrowing. Nobody wants to see a return to the bad old days of 125pc mortgages. The intention of Help to Buy is absolutely clear – it is for people who want to own their first home or move to a bigger home, not a second home.”

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