95% high loan-to-value mortgages 'are how our mums and dads got on the housing market'
The Treasury has issued a last-ditch defence of George Osborne's controversial Help to Buy scheme just days before it is due to be launched, publishing new research claiming that 95% mortgages were the norm before the financial crash.
The second phase of Help to Buy, the centrepiece of Osborne's March budget, will offer taxpayer-backed guarantees to help buyers clinch a house with a deposit of just 5%on properties worth up to £600,000. Economists, including former Bank of England governor Lord Mervyn King, have lined up to warn of the risks of a scheme that could inflate a new housing bubble, and may be politically difficult for the government to close down.
But the Treasury has repeatedly stressed Help to Buy is "a time-limited intervention, designed to address a specific market failure" — the shortage of high loan-to-value mortgages.
In an analysis published on Sunday, the Treasury says data from the Council for Mortgage Lenders shows the median loan-to-value ratio for first time buyers was 95% for most of the 1980s and 1990s. In the 25 years before 2007, it fell below 90% in only two years.
"High loan-to-value mortgages are not an anomaly: they're how our mums and dads got on to the housing market," said a spokesman.
Since the credit markets froze up and a large swath of the banking sector had to be propped up with government support in 2007 and 2008, high loan-to-value mortgages have become much rarer.
Business secretary Vince Cable, who repeatedly warned of the risks of reckless mortgage lending in the run-up to the crash, had called last month for the second phase of Help to Buy to be reconsidered, saying, "I am worried of the danger of getting into another housing bubble".
Instead, David Cameron used his party conference speech to say he was bringing it forward to October from the planned launch date of January, with the partially state-owned RBS and Lloyds expected to be the first banks to make Help to Buy mortgages available to customers, starting tomorrow[Mon].
The chancellor has already given ground on the details of the scheme, conceding that he would allow the Bank of England the right to scrutinise it once a year, instead of after three years of operation, as he had first planned.
But publication of the new research underlines how sensitive the Treasury is to the charge of subsidising an unsustainable boom. With prices already rising at more than 6% a year according to the latest data from the Halifax, and official figures showing the number of people employed in "real estate activities" is at a record high, Bank of England governor Mark Carney has said he is, "very alert personally" to the risks of a housing bubble.
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