Help to Buy 'aids social mobility'

The Government's controversial mortgage guarantee scheme will help boost social mobility by opening up home ownership to those without wealthy parents, David Cameron has claimed.

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David Cameron said initial figures showed Help to Buy was helping the "hardworking people" it was aimed at

The Government's controversial mortgage guarantee scheme will help boost social mobility by opening up home ownership to those without wealthy parents, David Cameron has claimed.

Figures showing average-income first-time buyers make up the bulk of 2,000-plus who have taken up the scheme in its first month.

The Prime Minister said initial figures showed Help to Buy - which critics say risks fuelling a new house price bubble - was helping the "hardworking people" it was aimed at.

He welcomed some of those accepted for a total of £365 million of home loans to a reception at Downing Street.

Mr Cameron said the scheme would help address some of the concerns raised by former prime minister Sir John Major about the lack of social mobility in the country.

He said: "This is about social mobility. The fact is that without Help to Buy we were beginning to see a country where only people who had wealthy mums and dads who could give them the money for their deposit were able to buy a flat or a house."

Surrounded by those who had benefited from the scheme he said: "Many of the people standing behind me have only been able to buy a flat or a house because they can now get a bigger mortgage without such a large deposit.

"They can afford those mortgage payments and they will be able to achieve their dream of owning their own flat or home.

"This scheme is about social mobility, it's about helping people who don't have rich parents to get on and achieve their dream of home ownership which is why it's so welcome."

Addressing the scheme's critics, Mr Cameron said: "It's been said 'Will it be big enough?' Well, it's certainly got off to an extraordinary start. Seventy-five families every day have taken steps to achieving their dream of home ownership.

"A third of a billion pounds of mortgages have so far been agreed.

"There were some who wondered if it would only be confined to the South of England. That hasn't been the case - Lloyds has found that 80% of their customers for Help to Buy are outside London and the South East.

"Some people thought it might only benefit those buying relatively expensive properties. Again, that's not the case - the typical property being bought under this scheme is around the average house price in the UK."

It has been claimed the scheme will drive up prices by increasing housing demand without stimulating the supply of new properties.

But Mr Cameron said: "We are not encouraging people to buy homes they can't afford or have mortgages they can't afford, we are helping them get mortgages they can afford.

"Secondly, it does help unlock the problem of a shortage of housing supply. Put frankly, the builders won't build, the developers won't develop unless the buyers are able to buy.

"That's why we are seeing growing levels of housing investment and housebuilding in our country. The two issues are linked."

Under the latest phase of Help to Buy, rushed forward by three months as part of a Conservative response to the rising cost of living, people can buy properties worth up to £600,000 with a deposit of only 5%.

NatWest owner Royal Bank of Scotland said it has taken 1,075 applications for loans - including from 75 teachers and 83 engineers - to buy properties with an average value of £167,565.

Almost three-quarters of customers were looking to buy their first home and the majority were couples applying with a joint salary of less than £ 50,000 and borrowing around £159,000.

Halifax, which is part of Lloyds Banking Group, has received 1,309 applications, of which more than 80% were from people outside London and the South East.

The average price of a property it was lending on was £160,157, with the first four weeks of the scheme generating applications to the value of £194 million.

So far, just a handful of lenders have launched products under the latest phase, led by the UK's state-backed banks.

But others, such as Santander and Barclays, have announced that they intend to participate.

Graeme Leach, chief economist at the Institute of Directors, warned that Help to Buy will force house prices up unless planning restrictions are eased. He said it could act like a "drug" on politicians, who will find it difficult to quit.

Mr Leach told BBC Radio 4's The World At One: "Yes, more people will get on the housing ladder, but they will pay more for the privilege, because we have a situation where if we try to stimulate demand for the housing market in the UK, there are so many restrictions on supply that it just drives up the price.

"What the housing market really needs is Help to Supply, not Help to Buy."

Mr Leach added: "Our concern is this is a drug that politicians could get hooked on and it will be very difficult to get them off, because people will start saying `If we withdraw the scheme, it will drive down prices and make the economy weaker'. Once we get into this process and once we get this policy embedded, it is going to be very difficult to get off it."

But Treasury minister Sajid Javid told the programme: "Right at the outset, when we first designed this scheme, we said very clearly it has got a shelf life of three years. The Bank of England Financial Policy Committee (FPC) will look at it after three years and make a recommendation of what should happen and if their recommendation is that the scheme should stop, it will stop.

"We have also announced that every September we are going to ask the FPC to look at the scheme and make any recommended changes to any of the parameters. That is designed to make sure that this scheme doesn't cause some kind of housing bubble - which is in no one's interest - but remains focused on what it is intended to do, which is to help people own their own home, particularly first-time buyers."

The chairman of the Commons Treasury Committee, Andrew Tyrie, wrote to the Bank last week asking for clarification of its responsibilities in relation to Help to Buy. He warned that the Bank's new task of making recommendations on Help to Buy should not result in it taking on a responsibility for housing policy as a whole.

Mr Tyrie told The World At One: " The Government is responsible, and should be responsible, for housing policy, helping first-time home-buyers and those struggling to get a mortgage. The Bank has its own responsibilities to ensure we don't end up with another boom and bust, like we had five years ago.

"It is absolutely crucial that by offering advice, the Bank don't in any way compromise their crucial role as the watchdog of the overall UK economy. They shouldn't allow themselves to come to be seen as responsible for the scheme.

"It could be that at some future date, the Bank would want to use the powers it has got to take the heat out of the housing market. It wouldn't help anybody if the advisory role they are being given on the Help to Buy scheme got in the way of that."