Britain fleshes out contested mortgage guarantee scheme

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British finance minister George Osborne will meet lenders and housebuilders on Tuesday to flesh out how a state-backed scheme to guarantee mortgages for risky borrowers will work when it comes into force in January.

The Help-to-Buy scheme, unveiled in the government's March budget, is designed to help people purchase their first home with as little as a five percent deposit.

The first phase of the scheme, which offers buyers of new-build properties a 20 percent equity loan interest-free for five years, kicked off in April; but the more important second phase, which offers 12 billion pounds ($18.44 billion), of mortgage guarantees does not come into force until January.

With house prices already rising faster than inflation, critics have questioned the wisdom of encouraging risky borrowers to jump on the property ladder.

The International Monetary Fund and the Office for Budget Responsibility have both warned that prices are likely to be pumped up more than supply, making it harder, not easier, for first-time buyers.

Bank of England policymakers have expressed concern about state intervention in the market and what will happen to prices when the mortgage guarantee scheme ends in three years' time.

The government said on Monday borrowers would need to have a good credit history, provide proof of income and satisfy the affordability "stress tests" set out in the Financial Conduct Authority's Mortgage Market Review.

The government also said taxpayer guarantees could not be used by wealthy people wanting to purchase second homes. Mortgage lenders,it added, would be required to collect a declaration stating that the borrower had no other property.

Details of the commercial fees charged to lenders have yet to be announced.

The government said the fee structure would depend on loan-to-value bands and would be finalized following discussion with the banks and building societies.

"It will be set to encourage as many lenders as possible to participate in the scheme, while protecting the taxpayer," the finance ministry said.

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