Help to Buy has not inflated house prices, says Bank of England

Governor of the Bank of England Mark Carney has written to George Osborne about the Help to Buy mortgage guarantee scheme.

This is the part of the 95% mortgage scheme that is available on both secondhand and new housing stock. It is distinct from the shared equity part of the scheme which is available on new homes only.

Carney has concluded that the scheme is not inflating house prices or encouraging a return to riskier lending.

Carney said that although the scheme has led to a return of lenders to above 90% loan to value mortgages, volumes of lending “remain small relative to experience before the financial crisis”.

He goes on: “Looking ahead, and based on the uptake of the scheme so far, we expect the volume of HTB loans to grow, but to become only a modest proportion of lenders’ mortgage books over the life of the scheme.

“Going forward, the risk of lenders extending loans under the scheme that stretch borrowers’ affordability is curtailed both because Help to Buy loans are covered by the Mortgage Market Review and your decision to cap loans in the scheme at 4.5 times income.”

The full letter is here:

http://www.bankofengland.co.uk/financialstability/Documents/fpc/letters/governorletter141002.pdf

Watch out for the bit about HTB loans not having driven an “increase in average mortgage tenors”. Does Carney really mean male singers with high voices?

We had to check – it’s a bit of an Americanism for tenure, but it means the time required for payments to become due.

* The Bank of England has recommended to the Treasury that the Bank should have the ability to exercise new powers aimed at preventing a housing boom and bust.

The Bank wants be able to cap loans to income ratios, meaning that it can set limits on how much people can borrow to buy a home.

On buy-to-let loans, it wants to ensure that rental income is greater than mortgage interest payments. The Bank is likely to get its new powers by next June.

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