Warning over mortgage guarantees

Andrew TyrieGeorge Osborne's plans to boost home ownership risk skewing the housing market and leaving the Treasury with a significant hole in its coffers, a powerful committee has warned.

MPs fear the Chancellor's decision to introduce mortgage guarantees makes the Government an active player in the market with a financial interest in maintaining house prices.
The Help to Buy scheme is "very much work in progress" and is likely to have a number of unintended consequences, the Treasury committee warned.

They included potentially landing the Government with large losses on the mortgages it has guaranteed because the lenders fee structure it intends to put in place to cover the costs will be "extremely difficult" to price in a way that "sharply curtails Exchequer risk".

In a critical report, the committee said confusion in the days after the Budget over whether the measures would allow people to buy a second home with government backing showed the need for ministers to "think schemes through carefully before announcing them".

The MPs add that they "struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property".

The intervention in the housing market may not even help first time buyers - the group the Government insists it is keen to support - and Mr Osborne's claim that increased demand will boost supply is "unconvincing", the committee's report on the Budget found.

"There is a risk that if mortgage lenders begin to exercise reduced levels of forbearance, repossessions may rise and house prices subsequently lower than they would otherwise be," the report added. "If this happened, and unless this risk was fully priced into the fee, then the Treasury could end up facing large losses on those mortgages it has guaranteed."

Committee chairman Andrew Tyrie said: "The Government's Help to Buy scheme is very much work in progress. It may have a number of unintended consequences. Without further detail it is not possible to estimate its effects. The questions the Committee has asked the Government need answering."

The Treasury committee's wide-ranging report into last month's Budget also called for an end to the traditional practice of briefing some parts of the media on the contents ahead of delivery in the Commons. It comes after a copy of the front page of the Evening Standard, which was given advanced information, was tweeted before the Chancellor rose to his feet in the chamber.

© 2013 Press Association
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