Britain launches mortgage plan, tries to sign up more banks
Britain will on Tuesday launch a much debated program to help people buy their own homes and set out the small print it hopes will persuade more of the country's big banks to take part.
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 sign up.
But talks with other big lenders have gone down to the wire.
Banks such as Barclays and HSBC want to see how much capital they must set aside to cover loans to home-buyers who may put down deposits of as little as 5 percent. Prime Minister David Cameron and his finance minister George Osborne brought forward the launch of the program to this week from its original start date in January.
They dismiss concerns that the program will fuel a boom-bust cycle in British housing. They say it will help people who have been frozen out of the property market by the big deposits sought by banks which remain wary after the financial crisis.
(Read more: Roll up, roll up: UK banks are up for sale)
Critics sas 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 program 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.
How popular the scheme will be will depend largely on how regulators view the state guarantee. The government is prepared to run up a liability of up to 12 billion pounds ($19.30 billion) - enough to support 130 billion pounds of new mortgage lending. But take-up could be much lower than that.
The main attraction for lenders will be the ability to offer high loan-to-value mortgages without tying up punitive amounts of capital. Most attention on Tuesday will focus on an announcement from Bank of England regulators, expected around 0600 GMT, on how they will require banks to treat the mortgages.
"The key factor will be capital relief," said Matthew Pointon, a housing economist at Capital Economics.
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.
The scheme was first announced in March when Britain's housing market and its economy looked in need of help. Since then, property prices have jumped - particularly in London - leading to fears the scheme could cause a new bubble.
A survey by the Royal Institution of Chartered Surveyors showed on Tuesday that British house prices rose at the fastest rate in 11 years in September and sales hit a four-year high.
A cross-party committee in parliament, which has criticized the scheme in the past, said it remained concerned. "Mistakes could distort the housing market or carry threats to financial stability," the Treasury Select Committee said on Tuesday.