The Government has signalled the end of one of David Cameron’s flagship housing policies, the Help to Buy mortgage guarantee scheme. In a letter to the Bank of England on Thursday the Chancellor Philip Hammond said the scheme would not be extended beyond 2016.
The mortgage guarantee scheme, a part of the wider Help to Buy policy, was controversial because of fears it could contribute to an unsustainable housing bubble by boosting demand for homes without raising supply.
Critics said the scheme might hurt more people than it helped because the continued rise in house prices since it was introduced may have excluded more people from buying homes than actually used the scheme. It is however difficult to separate out the impact of the scheme from other factors raising house prices.
Adam Posen, a former member of the Bank of England monetary policy committee, had previously branded the guarantee “dysfunctional”. The Bank of England’s Financial Policy Committee said earlier this month that the policy was not needed. It concluded that the scheme had not driven up prices, even on homes that the scheme was used to buy.
Other parts of Help to Buy – the equity loan scheme and the ISA bank account – will continue to operate. The loan element of the scheme is less controversial because it can only be used on new homes, meaning it is linked in some way to supply. The ISA effectively gifts people who have saved a deposit additional money and has been criticised for being potentially regressive.
Theresa May has said she wants to close Britain’s “homes deficit” and said housing will be one of her priorities, though she has yet to announce new policies in the area. She may announce new measures at the Conservative conference, which begins in Birmingham this weekend
The Chancellor wrote to Mark Carney to say: “The high LTV mortgage market has become less reliant on the scheme as confidence has returned. There are now over 30 lenders offering 90-95 per cent loans outside the scheme.
“This reflects the fact that the scheme was introduced with a specific purpose that has now been successfully achieved and, as such, I can confirm that it will close to new loans at the end of 2016 as planned. I will inform participating lenders.