Help To Buy Scheme Part Two

home07:25 Tuesday 23rd July 2013
BBC Radio Cambridgeshire

PAUL STAINTON: Several big mortgage lenders are being summoned to No. 11 Downing Street today, the Chancellor’s house of course, to hear how the second part of the Help-to-Buy scheme will work. Part One you may remember was launched just four months ago, and only affects new homes. Well Part Two starts in January of next year and is going to help people with existing homes Adam, so anybody, is that right?
ADAM KIRTLEY: Well yes, so long as you have some guarantees and credit checks and all of that. But yes. The current one has basically been saying if you want to buy a brand new home that’s just been built, we the Government will guarantee through the bank that we will make up any shortfall if you lend them 95% deposit, which is not what the banks want to do, they only want to lend like a 20% deposit or something, then we will guarantee the rest of it. So yes, basically that is what they’re going to do. Because the new bit is not just on brand new homes but on existing homes as well.
PAUL STAINTON: Right. Ok. Why is this necessary?
ADAM KIRTLEY: Because the economy is very lacklustre, and the Government is desperate to get some growth into it. And it believes that house buying, apart from the fact that people need homes, house buying is a very big boost to the economy. If you have lots of people buying brand new homes that’s brilliant for the construction industry, which has been in the doldrums for a long time now, because of course you need to have diggers and builders and plumbers and electricians and all of that stuff. And also if you get now with the new one if you get people moving more, buying existing homes, that of course is good for the economy as well, because as you know Paul you buy a new house, or you move into a new house and you think, you know what, I don’t like the carpet, I want some new furniture for this, I need to buy some paint to make the spare bedroom look nice. So you start to move the economy in that way. So this is all about getting the economy moving and helping people. But of course there is a danger if you allow people to take out 95% mortgages, are you not going to lead into the very problems that caused the boom and bust in 2007/8?
PAUL STAINTON: Mervyn King didn’t like this did he?
ADAM KIRTLEY: He didn’t. Sir Mervyn didn’t. He doesn’t. Of course he’s the ex-Governor of the Bank of England now. But he said this is dangerous. Actually the International Monetary Fund is a little bit scared. But the Government says don’t worry, we’ll tell lenders, they’re all meeting at Number 11, probably about now actually, they will tell lenders to apply stringent testing to borrowers to check they can afford repayments to prevent reckless lending. And the banks of course won’t really want to do reckless lending. I think what’s interesting as well here Paul is that the banks are loving lending on property. It’s actually quite easy to get a mortgage now. And that’s because of course when you lend against a house you have the house as collateral. They’re not lending .. Funding for Lending is meant to help lend to business as well, to borrow money to expand or whatever .. they’re not so keen to do that, because of course you’re lending in a much riskier way there, because there’s no house to have as a backdrop. So it’s quite interesting that this Funding for Lending thing is really working well with housing, but not working so well with business.

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More detailed explanation here.