Bank of England says Help to Buy mortgage guarantee not needed

Help to Buy Mortgage Guarantee Scheme is no long needed in the UK, the Bank of England has told the Government.

The Help to Buy Mortgage Scheme, a major government scheme which was designed to prop up the UK housing market, is no longer needed, according to the Bank of England.

The scheme, which is set to close at the end of the year, allows lenders to offer loans to people who have a deposit as low as 5%, thanks to support from the government.

The use of the scheme is in decline, with mortgage lenders reporting that business is up sharply.

The option to lend to people who only have a 5% deposit, is available outside the scheme at a similar if not cheaper price.

In a letter to Chancellor Phillip Hammond, the banks Governor Mark Carney said: “Given the decreasing usage of the scheme over time, the [Financial Policy] Committee judges that the closure of the scheme would be unlikely, in current market conditions, to affect significantly the provision of finance to prospective mortgagors, including high loan-to-value borrowers.”

Other Help to Buy schemes are unlikely to be affected, which include equity loans to buy newly-built homes, as well as the Help to Buy Isa savings scheme which is aimed at those saving for a deposit.

The Financial Policy Committee (FPC) said in a review of the Help to Buy Mortgage Scheme, that it accounted for 3% of total mortgage lending in the first quarter of the year. In 2014, it accounted for 6% of such lending.

It accounted for 25% of lending in the first three months of the year to those offering a deposit of less than 10% of the value of the home to be bought, compared with 70% in 2014.

The FPC said that the scheme has not posed a risk to financial stability of the housing market, adding that it had not driven up prices in general, nor on the houses bought through the scheme.

Separate figures from lenders have revealed that the health of the mortgage market was stronger in August.

Mohammad Jamei, Senior Economist for the Council of Mortgage Lenders (CML), said: “Widely voiced fears in recent months about the housing market have proved to be wide of the mark.”

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