* Scheme designed to help homebuyers with small deposits
* Critics worry scheme could fuel new property bubble
* Lenders to pay commercial fee but will get capital relief
By Christina Fincher and Huw Jones
LONDON, Oct 8 Britain launched a flagship
programme to help people buy their own homes on Tuesday,
offering banks the chance of providing high loan-to-value
mortgages without having to set aside punitive amounts of
The scheme, which allows home-buyers to put down a deposit
of as little as 5 percent, has raised fears that housing prices
may be heading for a new boom-bust cycle.
It was launched hours after a survey suggested British house
prices rose at their fastest pace in 11 years last month.
In a sign of the breadth of concern about the plan, a
cross-party committee of lawmakers warned on Tuesday that it
risked raising prices rather than supply.
"Mistakes could distort the housing market or carry threats
to financial stability," the Treasury Select Committee said.
RBS and Lloyds, both of which are
part-owned by the government, have said they will start
marketing state-backed "Help to Buy" mortgages this week.
Smaller lenders Virgin Money and Aldermore have also agreed to
Other banks are considering whether to sign up.
Prime Minister David Cameron and his finance minister George
Osborne brought forward the launch of the mortgage guarantee
programme to this week from its original start date in January.
Under the scheme, the government will offer to guarantee up
to 15 percent of the mortgage, helping people who in recent
years have been unable to get on the property ladder because
they lack the high deposits lenders now require.
Participating banks won't have to set aside capital to cover
the state-backed portion of mortgages they offer as part of the
programme, the Bank of England said.
"The guaranteed portion of the loan would be treated as an
exposure to the UK government," the BoE's Prudential Regulation
Authority said in a statement.
In exchange for the guarantee, the government will charge a
fee of up to 0.9 percent of the loan's value. This is designed
to cover any losses to the taxpayer, if borrowers default, and
to comply with European Union state aid rules.
Critics believe the plan was rushed out to give the
government a boost ahead of a 2015 general election, just as
former Conservative prime minister Margaret Thatcher reaped the
popularity of a programme to allow people to buy homes they
rented from local authorities in the 1980s.
The opposition Labour party says Help to Buy will not fix
the fundamental problem of low levels of housebuilding.
"Unless George Osborne acts now to build more affordable
homes, as we have urged, then soaring prices risk making it even
harder for first-time buyers to get on the housing ladder," said
Labour lawmaker and finance spokesman Chris Leslie.
The number two at Britain's Treasury reiterated the
government's defence of the plan, saying it would help people
who cannot afford the big downpayments sought by banks which are
still wary after the financial crisis.
"I don't think our housing market should be shut for people
who aren't lucky enough to have wealthy parents who can pay
their deposit, or have accumulated all the assets to pay a 25 or
30 percent deposit," Danny Alexander told BBC radio.