By Ana Nicolaci da Costa
LONDON May 29 Britain's government said its
mortgage guarantee programme has accounted for only a fraction
of lending for home-buying, following criticism that the Help to
Buy scheme was helping to fuel a housing bubble.
Figures showed 7,313 mortgages were taken out through the
scheme in its first six months to March, or 1.3 percent of all
mortgages issued during the period. Eighty percent of them went
to first-time buyers, the programme's target market.
"Help to Buy has been a success and house prices are still
in real terms 13 percent below the peak they reached in 2007,"
British Prime Minister David Cameron said. "This is a successful
policy helping people get on the housing ladder."
Critics of Help to Buy have said the programme looks
designed to win support for the government ahead of elections in
May 2015 and it adds to the risks of a house price bubble.
The Organisation for Economic Cooperation and Development
recently suggested it should be scaled back.
Bank of England Governor Mark Carney has noted the
potentially broader impact if Help to Buy encourages riskier
mortgage lending by banks outside the programme.
"Like an iceberg, the part visible above water grossly
understates its true size," said Rob Wood, chief UK economist at
Berenberg bank. He said the scheme encouraged one-way bets on
the British housing market.
The government began providing guarantees for mortgages
worth up to 95 percent of the value of a property in October in
a bid to help people get on the property ladder.
Since then, house prices have accelerated and are up about
10 percent over the past 12 months.
Thursday's data showed the programme was gathering speed
from a slow start. Mortgage completions reached 2,657 in March,
up from just four in October.
The value of mortgages supported by the scheme totalled just
over 1 billion pounds ($1.7 billion) through the end of March.
The pick-up in house prices has fuelled speculation that the
BoE could introduce new mortgage controls as soon as next month.
Among options on the table, it could recommend the
government lowers the ceiling for properties qualifying for Help
to Buy, which currently stands at 600,000 pounds.
However, the data showed most of the homes bought using a
Help to Buy mortgage are worth a lot less than the ceiling, and
few have been in London where prices are highest.
The finance ministry said the mean value of a property
purchased or remortgaged through the scheme was 151,597 pounds,
below a national average house price of 252,000. Just 5 percent
of completions were for properties worth over 250,000 pounds.
Meanwhile, Britain's financial services industry regulator
said on Thursday that it was too early to tighten underwriting
rules for home loans.
There are signs that the housing market is already losing
some of its heat.
New tighter rules on mortgage lending seem to have dampened
borrowing in recent months when mortgage approvals fell.
On Wednesday, UK lender Nationwide said London house prices
may fall soon and a managing director at fund management firm
PIMCO said British house prices were probably peaking.
The BoE has already refocused its Funding for Lending Scheme
(FLS) away from mortgage lending and dedicated it exclusively to
The Bank said on Thursday that net lending for businesses by
banks and building societies taking part in the FLS fell by 2.7
billion pounds in the first quarter of 2014.
The data showed net lending fell the most at Britain's
biggest retail bank Lloyds, which lent 2 billion pounds
less to businesses during the period.
"The overall decline in our lending, as reported under the
FLS, is the result of a fall in lending to multi-nationals, the
nature of which is short term and which is increasingly being
replaced with funding from the bond markets," Lloyds said,
adding that their lending to small and medium sized companies
($1 = 0.5986 British Pounds)
(Additional reporting by David Milliken and Matt Scuffham;
Editing by William Schomberg and Toby Chopra)