The Government today insisted only credit-worthy borrowers will be able to buy homes with its expanding housing stimulus programme as it revealed more details on the Help to Buy scheme.
Chancellor George Osborne met major housebuilders and mortgage lenders to flesh out plans to underwrite £130 billion of mortgage lending with state guarantees - including banning second home buyers and people with property abroad.
The first stage of Help to Buy was launched in April and offers loans to give people the chance to buy a new-build home with a deposit of just 5%. The scheme has been credited with driving a surge in home sales and driving up prices.
Mortgage guarantees will launch in January and will see the state take on the risk of default by borrowers by guaranteeing a proportion of a home loan.
Extending Help to Buy aims to boost mortgage availability by reducing the risk for lenders, and will cover both existing and newly-built homes.
Guarantees will only be available to borrowers who can afford the mortgages, while those with impaired credit ratings will be excluded, the Treasury insisted. It will include income checks and stress testing.
Lenders will pay a fee to use the guarantee, based on loan-to-value banding.
Mr Osborne held a breakfast meeting today at Number 11 Downing Street with executives from builders including Persimmon and Taylor Wimpey as well as major lenders such as Lloyds Banking Group and Barclays.
The guarantee will be be available on homes worth up to £600,000. The state will offer guarantees totalling up to £12 billion on £130 billion of high loan-to-value mortgage lending.
The initial equity loan stage allows people to buy a new-build home worth up to £600,000 with a Government loan of up to 20%, interest-free for five years.
However, the guarantee plans have been widely criticised for risking inflating another housing bubble and piling huge housing risk on the Government.
Former Bank of England governor Lord King warned that the scheme is "too close for comfort" to a general scheme to guarantee mortgages.
The Bank's deputy governor, Paul Tucker, also warned that it would be "unwise" as a medium or long-term scheme.
"This is not a market that needs a permanent subsidy," he said recently. "They (home loan guarantees) are devices for getting out of a hole to dig another one for the future."
Mr Osborne said: "I'm determined to back people who want to do their best for their families. Help to Buy is about getting behind those who aspire to own a home.
"The mortgage guarantee will support an increase in high loan-to-value mortgages for people who can't afford large deposits, and it will also boost housebuilding. As of today lenders have the detail they need to go away and get ready for next January's launch."
The Council of Mortgage Lenders (CML) said the guarantees must be easy to implement and have a "clear exit strategy".
The organisation, which represents banks and building societies, added the scheme must be matched with a similar focus on boosting the supply of new housing to avoid inflating a housing bubble.
CML director general Paul Smee said: "Lenders, whether they choose to participate in the guarantee scheme or stay outside, will continue to do their utmost to meet households' needs for mortgages, but always in a way that is responsible."
Pete Redfern, chief executive of Taylor Wimpey, said: "The second phase of Help to Buy will benefit the whole market, particularly existing homeowners who want to move up the housing ladder but have been unable to do so.
"This will have a direct impact on the second hand market and contribute to the overall health of the housing market with increasing transaction volumes and an increase in housebuilding for the industry and Taylor Wimpey."