The Help to Buy scheme, which aims to make it easier to buy a new home in the current constrained mortgage market, will not be able to be altered without the permission of the independent Bank of England Financial Policy Committee, according to an announcement from HM Treasury.
A ‘mortgage guarantee’ component of the scheme is launching three months earlier than planned, allowing people to buy properties with just a 5% deposit when they might normally need to raise as much as 20%; this was previously planned to be launched in January 2014.
Interest-only mortgages are not available under the scheme, which is also subject to stringent affordability tests to reduce the risk of the borrower defaulting on their loan.
There is also a separate ‘equity loan’ component, which covers up to 20% of the cost of a new-build property without incurring any interest for the first five years.
However, any significant easing in lending criteria runs the risk of creating a housing bubble – and to try and ensure this does not happen, the FPC has been given oversight responsibilities for the Help to Buy scheme as a whole.
Each September, the FPC and the government will work together to assess the performance of the scheme and its impact on the housing market, allowing adjustments to be made to the price cap and the fees involved if it is deemed necessary to do so.
The scheme is intended to run for a fixed three-year period, with the last Help to Buy loans being approved by January 2017; and the FPC will have the final say on this deadline as well.
HM Treasury explains: “If any future government proposed to extend the scheme beyond its three-year life, the FPC would need to agree.”