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CML and Bank aligned on need for Help to Buy exit strategy

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Published: 22 May 2013 | Author: Bernard Clarke

The Help to Buy mortgage guarantee scheme is targeted at creditworthy borrowers saving for a deposit on their main home, the CML's director general, Paul Smee, told lenders in Wales on Friday. But the industry need to understand what constitutes success for the scheme – and the government’s exit strategy when Help to Buy is due to come to an end after three years.

Speaking at a CML Cymru lunch in Cardiff, Paul Smee acknowledged the merits of Help to Buy but highlighted the need for an "exit path." Recalling the effects of the stamp duty holiday which ended in March 2012, the CML director general continued: "Schemes which end in a cliff edge distort the market and tend to create a bubble on one side and a desert on the other."

Paul Smee’s speech to lenders coincided with the views of outgoing Bank of England governor, Sir Mervyn King. In a television interview at the weekend, Sir Mervyn said that the UK did not need a scheme providing permanent help to borrowers but the return of a "healthy mortgage market with competing lenders attracting borrowers."

 Mervyn King
Mervyn King: "We mustn’t let Help to Buy turn into a permanent scheme."

At the CML Cymru lunch, Paul Smee pointed out that Help to Buy marked a shift away from schemes concentrating on newly-built property, and widened access for a broader group of borrowers whose purchase is being delayed by the fact that lenders are primarily offering mortgages at a loan-to-value ratio of 80%. Referring to Help to Buy, he said:

"I would really like to be clear on what constitutes success for the government and what its exit strategy from the scheme will be after three years...The emphasis on creditworthy borrowers is noted and helpful...That must be reflected in the target which the government sets for the scheme and by which it judges success. There is no point with one hand affirming a belief in the maintenance of high lending standards and with the other imposing targets requiring a laxer attitude to be taken."

Meanwhile, in his interview with Sky News, Sir Meryvn described Help To Buy as "too close for comfort" to the US mortgage guarantee schemes that played a key role in the financial crisis, and argued that it should not become permanent. During the interview, Sir Mervyn said:

"I'm sure that there is no place in the long run for a scheme of this kind. This scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market. We do not want what the United States have, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position. So, we mustn't let this scheme turn into a permanent scheme…When is the right time to terminate it will depend on economic conditions at the time."

Help to Buy, which was unveiled in the Budget, will see the government guarantee up to 15% of a mortgage on properties worth up to £600,000. It is due to run for three years from January 2014.