Chancellor of the Exchequer George Osborne, who often attacks the opposition Labour Party for creating an “economy built on debt” under the previous government, will today give details of how the current administration will guarantee riskier mortgages to boost growth.
Under the “Help to Buy” program, the Treasury will back mortgages of as much as 95 percent of a property’s value for first-time buyers on homes valued at as much as 600,000 pounds ($920,000). The initiative, which has drawn a warning from the International Monetary Fund for its potential to stoke home prices, was described as “moronic” by Societe Generale SA global strategist Albert Edwards last month for encouraging Britons to add to high debt levels.
Osborne will attempt to deal with some of the criticism by pointing out that borrowers will have to pass stress tests and not have had any court judgments for debt against them in the three years before they take the loan. They’ll also have to sign a document saying this is their only property.
“The mortgage guarantee will support an increase in high loan-to-value mortgages for people who can’t afford large deposits, and it will also boost housebuilding,” Osborne said in an e-mailed statement. “As of today, lenders have the detail they need to go away and get ready for next January’s launch.”
Mortgage lenders will have to pay a fee for the guarantee, set at a level that will encourage them to participate, the Treasury said. Osborne will meet some of their representatives for breakfast today.