UK's Help to Buy mortgage plan has limited impact so far

By Ana Nicolaci da Costa

LONDON (Reuters) – Britain’s government said on Thursday that its controversial Help to Buy mortgage guarantee programme accounted for just 1.3 percent of all mortgages issued in Britain since it was launched six months ago.

The finance ministry also said 80 percent of the 7,313 mortgages taken out through the scheme between October and the end of March went to first-time buyers.

The government began guaranteeing risky mortgages worth up to 95 percent of the value of a property in October. It said it wanted to help people unable to afford big deposits get on the property ladder.

The launch of the scheme coincided with a rapid rebound in the housing market and prices are now rising at about 10 percent a month.

Critics of Help to Buy have said it adds to the risks of a price bubble in the housing market. The Organisation for Economic Cooperation and Development has suggested Help to Buy should be scaled back.

Bank of England policymakers have also expressed concern about the pace of the housing market recovery.

The total value of mortgages supported by the scheme only totalled just over 1 billion pounds through the end of March, the finance ministry said.

Despite its small scale so far, some analysts noted the programme was growing in size month by month and said it could have wider implications for the housing market.

“It is funding a small proportion of mortgages so far, but the impact of the scheme is much more significant than those raw numbers say,” said Rob Wood, chief UK economist at Berenberg bank.

“What’s important from these figures is that they’re rising fast. There were more than three times as many mortgage completions through Help to Buy in March as there were in December.”

Bank of England Governor Mark Carney has also noted the potentially broader impact of Help to Buy if it encourages riskier mortgage lending by banks outside the programme.

“It’s a pretty targeted programme, it’s a relatively small programme at this point but it could grow a lot and it could change attitudes in other parts of the mortgage market, that’s why we have to be vigilant,” Carney told Sky television earlier this month.

The BoE is expected to announce further mortgage controls, possibly as soon as the June meeting of its Financial Policy Committee. The FPC was set up to avert recklessness in the financial system.

The Bank has already refocused Britain’s Funding for Lending Scheme away from mortgage lending and dedicated it exclusively to business lending.

The BoE said on Thursday that net lending for businesses by banks and building societies taking part in the FLS scheme fell by 2.7 billion pounds in the first quarter of 2014.

(Additional Reporting by Andy Bruce; editing by William Schomberg)

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UK's Help to Buy mortgage plan has limited impact so far