London Housing Crisis: How Would Labour Fix It?

This article by Dave Hill of theguardian on September 29th, 2013 reveals the ongoing debate that is taking place about the capital's particular housing problems behind the scenes since Ed Miliband's conference speech offered big policy ideas, but was short on detail.

The housing element of Ed Miliband's Labour conference speech was greeted by the wiser commentators with a mixture of disappointment, puzzlement and hope. Colin Wiles pointed out that despite that heavily-trailed pledge to be building 200,000 new homes a year by 2020 if Labour wins in 2015, only a few words of the Labour leader's oration were devoted to housing. He quoted all 212 of them in full, and so will I:

So we'll say to private developers, you can't just sit on land and refuse to build. We will give them a very clear message - either use the land or lose the land, that is what the next Labour government will do. We'll say to local authorities that they have a right to grow, and neighbouring authorities can't just stop them. We'll identify new towns and garden cities and we'll have a clear aim that by the end of the parliament Britain will be building 200,000 homes a year, more than at any time in a generation.

What do these words really amount to and how much encouragement should London, with its distinctive and growing clamour of housing troubles, draw from them?

As I wrote just before Miliband got to his feet in Brighton, the capital could be needing about half of those 200,000 when and if the Labour leader becomes prime minister, suggesting that the target isn't nearly big enough for either London or the UK as a whole. Or Britain. Or England. Jules Birch joined Wiles in wondering precisely which bits of the British Isles Miliband was applying the 200,000 figure to. For Lynsey Hanley the speech was a mere step forward when what's required is a giant leap.

However, both Birch and Wiles found some encouragement in those few dozen words. And their poverty of detail belies the scope of debate in Labour circles about housing policy, not least as it would apply in London should Miliband enter Number 10 and a Labour mayor - Jowell? Khan? Lammy? Adonis? - take command of City Hall in 2016.

There is a strong desire to clamp down on the scandal of land banking for massive profit in London at a time when the housing shortage is critical and overcrowding rife. Shelter's Roger Harding says here that the GLA reckons about half the hoarded sites in the capital aren't even owned by property developers, but by hedge funds and banks with no intention of building so much as a garden shed on them.

We already knew shadow London minister Sadiq Khan is giving some thought to if it's time for a land value tax, which could put a big break on speculation, and I'm told he has found the Smith Institute's case for a property speculation tax "very interesting".

Miliband's "use it or lose it" line on this had right-wing pundits howling about totalitarian state "theft" but even prominent London Tories are calling for radical remedies. In June, Conservative London Assembly member Tony Arbour asked for "the problem of land banking" to be dealt with by boroughs demanding that planning consents set a date for the plan's completion. Boris Johnson himself re-affirmed during the same debate that he is prepared to make greater use of compulsory purchase orders to deal with the "pernicious" phenomenon.

Labour policy thinkers are also putting their minds to devising a concept of "affordable" housing that isn't outright laughable, as is the case with the government's malfunctioning "affordable rent" ploy. How should "affordable" be defined? Who should decide?

There is, it seems, broad agreement that a "fairly high" percentage of the new homes Labour would want built in London would be for social rent as conventionally understood.

On the private rented sector it isn't only Khan who likes Newham council's accreditation scheme for private landlords. Shelter's proposal for inflation-linked, five-year stable rental contracts appears much admired as a better way of limiting rent increases and improving tenant insecurity than old-style rent controls, though the party hasn't yet worked out whether or not it thinks these should be statutory.

Miliband has asked the former BBC Trust chair Sir Michael Lyons to look into ways to to prevent precious land being left unused while its owners idly watch its value mount. Sir Michael will also consider the development of those "new towns and garden cities", a good percentage of which would very likely be within easy commuting reach of the capital. How times have changed. The New Towns built in London's orbit after the last war - Stevenage, Crawley, Basildon and so on - spoke to a readiness among Londoners to leave a smogged, bomb-ravaged London behind. The new New Towns would be in part a response to more and more people wanting to be here.

I'm told that firmer Labour proposals for housing in London will emerge in the coming months. Dare we hope they will be bold?

Article Source: http://www.theguardian.com/uk-news/davehillblog/2013/sep/29/how-would-labour-solve-london-housing-crisis

London Fuels Record Growth in UK House Prices

English property prices pushed roaring demand for London housing more than their peak at the height of the country's economic boom according to this article by Ed Hammond, Kate Allen and Claire Jones of FT Adviser on September 17th, 2013.

Roaring demand for London housing has pushed English property prices beyond their peak at the height of the country’s economic boom, official figures showed on Tuesday, underscoring concerns of an impending housing bubble. 

House prices in the capital outpaced those in the rest of the country by a factor of 10 times during the past year, according to figures from the Office for National Statistics. The jump helped lift the English average house price 3.7 per cent during the 12 months to July to £255,000, surpassing the 2008 zenith.

 

The Bank of England’s Financial Policy Committee, which is responsible for safeguarding financial stability, is on Wednesday expected to discuss the housing market against the backdrop of warnings from policy makers that the government’s mortgage guarantee schemes are fuelling nationwide price growt.

Last week, the Royal Institution of Chartered Surveyors urged the BoE to curb the risk of another housing boom by taking the unprecedented measure of capping national house price growth to 5 per cent a year.

After stripping out the impact of London, however, average UK house prices rose just 0.8 per cent during the year, underlining the diverging economic fortunes between the capital and the wider UK housing market.

This divergence complicates the BoE’s new policy of “forward guidance” under which the FPC must confirm that ultra-low interest rates are not serving to undermine financial stability.

While it would be unlikely for the FPC to signal the end of forward guidance a little over a month after its introduction, the new policy heaps pressure on the FPC to explain why housing is not compromising financial stability.

To date policy makers have focused on a one-size fits all solution for the country.

“The difficulty is you have significant variations between London and the rest of the UK, so it is impossible to control pricing by manipulating the entire mortgage market,” said Lucian Cook, head of UK residential research at Savills, the property group. “All it will achieve is to create further polarisation between the equity-rich buyers and the debt-reliant market”.

The cost of an average London home hit £318,000 in the 12 months to July, according to the Nationwide, compared with £167,200 for the rest of the UK. The difference means the average London house is worth 1.9 times property elsewhere, eclipsing the 1987 peak of 1.75 times.

Analysts do not expect the FPC to announce measures to restrict activity in the mortgage market in its post-meeting statement next Wednesday. Mark Carney, governor of the BoE, last week played down concerns a housing bubble is inflating, while saying policy makers needed to remain “vigilant”.

“When looked at in the broadest terms, it is obvious that no agent of the government would wish to act at the current time to cool the housing recovery,” said Brian Hillard, economist at Société Générale. “What the Bank can do, however, is monitor the state of the housing recovery.”

Prices also rose in Northern Ireland, where the property market has been devastated in recent years. Average house prices fell in both Scotland and Wales, however.

The ONS index only includes transactions involving a mortgage – it does not include cash-only purchases. A substantial proportion of sales are now to cash buyers.

The LSL/Acadametrics index, which includes sales to cash buyers, showed a 3.2 per cent annual rate of growth in its most recent figures. But other indices run by mortgage lenders, such as Nationwide and Halifax, show prices are still substantially below their 2008 peak. House price indices have diverged in recent years, as methodological differences produce increasingly divergent results.

Article Source: http://www.ft.com/intl/cms/s/0/0d15ebae-1f8f-11e3-8861-00144feab7de.html#axzz2fPX03wcg

London House Prices Rise by 9.7% Another Fears of New Property Bubble

This article by Vicky Shaw of The Independent on September 17th, 2013 reveals of another increase in London house prices by 9.7% that may led to fears of another property bubble.

House prices in London have risen by nearly 10% in the last year, adding to signs of a sharp north-south divide in the market.

A 9.7% increase in prices in London over the year to July helped to push the value of homes across England to a new high of £255,000 on average, the Office for National Statistics (ONS) said.

House prices in London and the South East both raced past their 2008 peaks and stood at an average of £438,000 and £303,000 respectively, while prices in the East of England and the South West also edged close to their previous highs.

But the UK market was still patchy and while house prices were up by 3.7% year-on-year in England they dropped by 2% in Scotland and 0.7% in Wales.

Prices in Northern Ireland were up by 1.8% year-on-year as the market showed signs of starting a slow recovery after some sharp falls following the economic downturn.

The annual pace of house price inflation picked up across the UK in July to its fastest rate recorded in 2013 so far at 3.3%, taking values to £245,000 on average. Prices rose by 0.3% month-on-month.

Concerns have mounted in recent weeks that Government initiatives to kick-start the housing market such as Funding for lending and Help to Buy are in danger of creating a property bubble, with borrowers over-stretching themselves as access to low-deposit deals returns.

Last week, the Royal Institution of Chartered Surveyors (Rics) suggested that a 5% cap should be placed on annual house price growth to stop any future house price bubble and borrowers taking on too much debt for fear of missing out on a boom.

Matthew Pointon, property economist at consultancy Capital Economics, described London as a "special case", with prime central London in particular seen as a safe haven for overseas buyers to place their cash. He said some areas of London are seeing "bold behaviour" from buyers.

In the short term, a shortage of homes on the market in London is likely to spell further price gains in the capital, he predicted.

Peter Rollings, chief executive at London-based estate agents Marsh & Parsons, described the London market as telling "a different story" to the rest of the UK.

He said: "The huge demand for property in the most desirable parts of the capital, from both UK and overseas buyers, is helping to push prices higher.

"In the three months to June, we recorded 11% more buyers entering the market in competition for 14% fewer properties. Property is changing hands in record time and for close to the asking price."

At £132,000 on average, house prices in Northern Ireland are still 49% below a previous peak recorded in 2007. Prices in Scotland are around £182,000 and are sitting 6% below their previous high, which was recorded in 2008.

House prices in Wales are 7% below their 2008 peak, and currently stand at £160,000 on average.

Richard Sexton, director of e.surv chartered surveyors, warned that rising house prices in some areas threaten to price some people trying to get on the property ladder out of the market at a time when households are still under pressure from high inflation and stagnant wages.

He said: "If the Government wants to make housing more affordable - and avoid inflating another property bubble - then it needs to encourage more house building."

Housing Minister Mark Prisk said: "New housing supply is at its highest level since 2008, with 334,000 new homes built in England over the past three years, including 150,000 affordable homes.

"Over the coming months we will unlock construction for thousands of new homes at stalled sites, and our £1 billion Build to Rent fund will help build a bigger, better private rented sector with more choice and quality for people in the housing market."

Article Source: http://www.independent.co.uk/news/uk/home-news/london-house-prices-rise-by-97-sparking-fears-of-new-property-bubble-8822383.html

Prime Property Prices in Central London Up 116% in Last 8 Years

Research shows that in the past 8 years prime Central London house prices have more than doubled and it is up by 116% outpacing the RPI by 86%, according to this recent article on September 11th, 2013 of the Property Wire.

Prime central London house prices have more than doubled in the past eight years, up by 116 and outpacing the Retail Price Index by 86%, new research shows.


By contrast the average UK property price is 19.3% down on the same period, according to the research from Savills which tracks the expansion of the market since its indices were launched in 1979 and analyses in detail the performance of different locations in the latest market cycle.

It shows that prime central London property prices have grown on average 4.9% per annum since 1979.  This compares to just 3.6% above inflation across greater London and a UK average of 2.9%, opening the gap between prime London and the rest to its widest ever.

Mayfair tops the growth chart with growth of 139% since the middle of 2005, followed by Knightsbridge, Belgravia and Chelsea with growth of at least 128%.  All are now at least 30% above peak.

The analysis points out that supply has failed to keep pace with demand, resulting in an expansion of prime London from its Belgravia core in the 1950s to a swathe that runs from Richmond in the south west to Islington in the north, from Chiswick in the west to Canary Wharf in the east.

‘London is seen as one of the premier world cities in which to both live and invest. London’s economy has been put at nearly a third the size of that of the whole of the UK. Like other global cities, London attracts capital from around the world,’ said Yolande Barnes, head of world residential research.

She pointed out that the demand catchment for London housing is therefore global and the appetite for investment remains strong. Also London is physically limited in size and by very low levels of new supply so real house prices have risen much faster  than elsewhere.

‘London is a honey pot for wealthy real estate buyers but many of these buyers also live and work in London. It would seem that London’s housing market is inextricably tied with its economic success but it has been failing for some time to increase supply at a sufficient rate to curb price growth,’ explained Barnes.

This means that the lack of housing supply is playing out most visibly in London’s prime housing markets where the wealthiest home owners can compete most effectively for space.

Looking forward, the analysis suggests that the strength of outer London prime markets will be dictated by the creation of new wealth from the London economy and the flows of wealth between prime markets.

The report says that generally, over the next five years, London and the south east are expected to lead the economic recovery in the UK. In London, the economic growth from the all important financial and insurance sector is likely to be on a par with the average for the capital. The highest economic growth is forecast from the professional scientific and technical and information and communication sectors.

‘These sectors will, like financial services before them, also attract international investment and human capital which is expected to be reflected in overseas demand for housing. This is likely to widen the profile of buyers and support underlying housing demand for prime property beyond central London,’ it points out.

It also suggests that an increased proportion of prime demand is likely to be focused on the commuter zone given the gap between pricing in these markets and prime domestic London.

‘We expect to see a continued displacement of wealth from the prime central London markets into other parts of prime London and beyond. The markets in closest proximity to prime central London will see continued overseas buying activity, mainly from full time residents in the capital. This means the prime central London and other prime markets will remain linked,’ adds the report.

Article Source: http://www.propertywire.com/news/europe/london-prime-property-analysis-201309118224.html

UK is Urged to Invest £50bn in a Greener Economic Recovery

For the sake of UK greener economic recovery, Green New Deal campaign group says £50bn should be spent on technology, cheap housing and insulating homes as revealed on this article by Heather Stewart of TheGurdian on September 8th, 2013.

Campaigners have warned that Britain is hurtling towards a new economic crisis, and call for a £50bn "Green New Deal" to create more sustainable growth and better-paid jobs and equip the country for a low-carbon future.

After two quarters of better-than-expected GDP growth and a batch of positive economic indicators – including rising house prices and upbeat business surveys – the coalition is hoping the summer economic bounce will turn into a longer-term recovery. But five years on from their first demands for a radical reworking of Britain's business model, the Green New Deal group, which includes Green party MP Caroline Lucas, economist Ann Pettifor and tax expert Richard Murphy, says the need for an alternative approach is greater than ever. In a report published on Monday, and seen by the Observer, it argues that recent growth has been based on unsustainable rises in consumer spending and house prices and could end in "the mother of all credit busts".

"Recovery is an interesting word to apply to an economy that is marked by rapidly rising personal debt, highly insecure and often low-paid work, and rising underlying carbon emissions. What we're calling a recovery is poor, divided, indebted and polluting," said Andrew Simms, chief analyst at thinktank Global Witness and an author of the report.

Central banks have poured cheap money into financial markets to drive down interest rates and prevent deflation and depression. But Green New Deal says this is a dangerous gamble: "Given the choice, they prefer to have the problem of asset prices going through the roof than the problem of deflation. If they are wrong and the bubble bursts before the recovery arrives, it will be the mother of all credit busts," it says.

Under an alternative plan in the Green New Deal report, the government would invest £50bn into expanding green technologies over five years, building low-cost housing, and employing a "carbon army" to insulate hundreds of thousands of homes and reduce energy use.

The authors say these measures would create more, and better-paid, jobs than the current debt-fuelled bounce, which Pettifor described as an "Alice in Wongaland" recovery. Lucas, who is the MP for Brighton Pavilion, said a grassroots workforce could be trained to lag Britain's chilly lofts "within weeks". "Ministers want to cut a nice big ribbon on a new nuclear power station – but this would be far more effective in getting our emissions down quickly," she said.

Real incomes have continued to fall over the past year, as above-target inflation has outpaced pay growth, in what the TUC has described as the greatest wage squeeze since the 1870s. Green New Deal argues that if more workers were paid a living wage it would help to create more sustainable consumer demand. Frances O'Grady, the general secretary of the TUC, which begins its annual congress in Bournemouth on Sunday, supported the Green New Deal initiative, saying: "The green economy already employs nearly a million people, in areas from electric-car manufacturing to wind-turbine installation. Implementing some of the ideas in this report could help these industries create more of the skilled and well-paid jobs we need if we are to build a sustainable recovery."

The authors suggest their pro-growth policies could be paid for by scrapping the controversial HS2 rail project; cracking down on tax evasion; and launching a fresh round of quantitative easing.

Instead of using electronically created money to buy government bonds from City investors, as the Bank of England has done with almost all of the £375bn-worth of QE it has undertaken since 2009, the proceeds this time would be used to invest in green projects, and pay off private finance initiative debts, freeing up public money to be spent elsewhere.

The report argues that investing in affordable housing, in particular, would benefit those on lower incomes more than the better off. "It can mean that people have more disposable income after housing costs, which in turn boosts spending in the local and national economy," the report says.

The authors argue that a rapid boost in the supply of housing would also help to "dampen the housing bubble beginning to appear in response to government measures such as Help to Buy, which facilitates prospective homebuyers to find a deposit". The controversial Help to Buy scheme was the centrepiece of George Osborne's March budget, and has been questioned by a number of critics, from the former governor of the Bank of England, Lord King, to the International Monetary Fund, amid fears that it could create a new property boom.

Mark Carney, the Bank's new governor, has said he is "very alert personally" to the risk that a housing boom is emerging – and said he was ready to burst any bubble, by targeting mortgage lending.

Reforming the bailed-out banking system is another central proposal of the report, suggesting that Royal Bank of Scotland, which is majority-owned by the taxpayer, could be broken up into a series of regional lenders that would build relationships with local industries. "All the mechanisms which have been brought into play to encourage lending to the productive part of the economy don't seem to be working," says Simms.

Labour has promised to introduce a British Investment Bank, to boost lending to businesses; but it has eschewed much of the Green New Deal agenda over the past five years, focusing on an emergency VAT cut as the centrepiece of its policies to create a recovery.

Other members of Green New Deal include Charles Secrett, former director of Friends of the Earth; Jeremy Leggett, chairman of green energy firm Solarcentury; and Larry Elliott, economics editor of the Guardian.

Article Source: http://www.theguardian.com/environment/2013/sep/08/invest-greener-recovery

Lenders in the UK Confident That Stress Tests Will Not Bar Most Mortgage Applicants

According to the research by the Intermediary Mortgage Lenders Association intermediary mortgage lenders in the UK are ensured that new affordability checks resulting from the MMR will not significantly reduce the number of people who successfully apply for a mortgage as shown in this recent article by the Property Wire on September 3rd, 2013.

Research by the Intermediary Mortgage Lenders Association found just 7% of intermediary lenders expect significantly more people will be turned down for a mortgage because of new stress tests, which will examine whether borrowers could afford their repayments in the event of interest rates rising.

IMLA’s Intermediary Lending Outlook shows that almost three quarters of lenders are confident that affordability checks will not impact borrowers in large numbers while the remaining 20% are unsure.

Overall responsibility for affordability checks will officially pass from brokers to lenders when the MMR takes effect in April 2014.  While many of its provisions are already standard practice for lenders, mortgage brokers are less convinced that aspiring borrowers will be unaffected.

Although 34% of brokers do not expect stress tests will significantly reduce the number of successful mortgage applicants, some 44% predict that considerably more consumers will find they are turned down.

However, brokers are significantly more confident about the impact of the MMR than they were at the start of the year. Some 66% are not at all worried in August 2013, compared with 42% in January 2013, and the percentage with significant worries has dropped from 12% to 4%.

In contrast, 67% of lenders are currently worried about the impact of MMR but despite their extra responsibilities under the new rules, no lender has serious concerns.

‘The MMR rules on affordability are built on common sense and are not too far removed from how many lenders already approach the issue. Recent experience has shown how important it is to ensure that mortgage borrowers can reasonably manage their commitments, not just now but in the future,’ said Peter Williams, executive director of the IMLA.

‘We are in unfamiliar territory when it comes to current interest rates, so we have to be pragmatic and anticipate the likelihood of change. Falling numbers of arrears and repossessions in recent years show a responsible approach to mortgage approvals, and lenders are working hard to ensure their existing tests meet the full MMR requirements without unfairly disadvantaging consumers,’ he explained.

‘Although the regulatory buck will rest with lenders from April 2014 there is still a collective responsibility to put affordability at the heart of the industry. This involves brokers working closely with lenders to help finalise the rules of engagement, while also ensuring that customer expectations are managed and applications suitably vetted,’ he added. 

Article Source: http://www.propertywire.com/news/europe/lenders-uk-mortgage-review-201309038187.html

Opinion Stands Divided Over UK Housing Programme

This August 26, 2013 article by Julia Werdigier of gulfnews.com reveals the ongoing debate about the help to buy scheme housing programme by the government. 

Under the plan, the government either offers interest-free credit or guarantees part of the property loan.

London: Depending on where one stands in the debate on the rising cost of housing in Britain, Paul Thomas and Abigail Walker, first-time home buyers, are either part of the solution or part of the problem.

To buy a £248,000 (Dh1.4 million) two-bedroom house in Oxfordshire, west of London, Thomas, a 38-year-old electrician, and his 25-year-old partner, Walker, who works in an accounting office, are making use of a government programme called Help to Buy. They are making a down payment of only 5 per cent from their own funds, and the government is giving them an interest-free loan to cover the other 20 per cent of the down payment.

The government of Prime Minister David Cameron has cast the programme as a way to stimulate the country’s sluggish economy by helping consumers buy homes they could not otherwise afford. But critics say it could lead to a housing bubble and a spate of problem loans on which the government could be left to make good.

Under Help to Buy, introduced in March, the government either offers interest-free credit or guarantees part of the property loan. The resulting higher demand for homes is supposed to fuel construction and aid the economic recovery.

“Help to Buy is a dramatic intervention to get our housing market moving,” George Osborne, the chancellor of the Exchequer, told Parliament in presenting the plan. “That is a good use of this government’s fiscal credibility.”

Market pick-up

But during the last month, the outcry has grown from some lawmakers and economists, who are demanding an early end for Help to Buy. They note that the housing market was already picking up and warn that the plan could create a housing bubble that would likely burst when the programme expires in 2016, while driving price increases that will make homes even less affordable for many in the meantime

Critics also question the wisdom of giving people a mortgage with a down payment of as little as 5 per cent when lenders are under pressure from regulators to reduce the riskiness of loans.

The plan as announced in March by Osborne came in two parts. The first piece, in place since April, is limited to the purchase of newly built homes. The government offers a five-year, interest-free loan for 20 per cent of the home value to put toward the down payment. Thomas and Walker are getting help through that portion of the programme.

The second and more contentious part of the plan, which is to start in January, allows anyone to buy a house with only a 5 per cent down payment. The government would then guarantee an additional 20 per cent of the bank loan for any property worth as much as £600,000, effectively passing the risk to the government from the lender.

“Using the government’s balance sheet to back these higher loan-to-value mortgages will dramatically increase their availability,” Osborne said when he presented the plan to Parliament in March.

Thomas and Walker had recently moved in with Walker’s mother in Oxfordshire to save money for a deposit, which they said would have taken them 10 years to come up with on their own.

But now they plan to move into their newly built home in the autumn. Instead of a £62,000 down payment on the purchase price of £248,000, they had to put down only £12,400. Help to Buy is coming up with the rest.

“It really put a smile on my face,” Thomas said.

Motive behind scheme

Some economists said making voters like Thomas happy was the main motive for Osborne’s plan. About two years before the next general election, and with recent opinion polls showing the opposition Labour Party neck and neck with Osborne’s Conservative Party, Osborne is betting on the housing market. Not being able to afford a home is “a blow to the most human of aspirations,” he told Parliament.

The government says the programme has been a success so far. More than 10,000 people have reserved newly built homes since April, and the number of first-time buyers was at the highest level since 2007, the government said this month.

Barratt Developments, one of Britain’s largest house builders, said sales had risen 35 per cent in the three months through the end of June, from the comparable period last year, with “a significant amount” of the upturn a result of Help to Buy.

But Britain’s housing market had already been improving. Helped by record low interest rates and demand from foreign buyers, especially in London, prices of homes nationwide rose 4.6 per cent in the three months to July, the highest annual increase since August 2010, according to the mortgage provider Halifax. In London, the increase was 8.1 per cent.

Compared with the United States or some countries in Southern Europe, Britain’s housing market downturn after the financial crisis was relatively mild. Home prices in Britain fell less steeply from their 2007 peak than those in the US because of a combination of mortgage laws and a shortage of new homes.

London home prices

Home prices have increased so much in London that the average first-time buyer now has to spend half of his net salary on mortgage payments, according to the Nationwide Building Society.

Osborne and the Bank of England’s new governor, Mark J. Carney, have rebutted criticism of the housing programme, saying Britain was still far from a housing bubble.

But behind the scenes at the Bank of England’s Prudential Regulation Authority, which is in charge of ensuring the safety of banks, there are concerns that Help to Buy conflicts with the regulator’s aim of reducing risk in the banking sector and applying stricter lending rules, according to a senior bank official, who spoke on the condition of anonymity.

Banks that have signed up for the programme include the Lloyds Banking Group, in which the government continues to hold a stake after a bailout, along with Nationwide and Santander.

Those banks and others are in talks with the government about how much lenders will have to pay to participate in Help to Buy and how much capital the banks will have to hold for those loans.

Many economists are asking why, if banks are unwilling to take the extra risk of making such loans without government inducements, the government should be expected to backstop the programme.

Andrew Brigden, an economist at Fathom Consulting, said the programme would make it easier for banks to make riskier loans. Help to Buy is a “reckless scheme” because it “uses public money to incentivise the banks to lend precisely to those individuals who should not be offered credit,” Brigden said.

But Osborne has argued that the programme is fixing a mortgage market that has been discriminating against people who can afford the monthly mortgage payments but do not have enough savings for a down payment. Passing part of the lending risk from the banks to the government does not worry him, he said.

“Because it’s a financial transaction, with the taxpayer making an investment and getting a return,” Osborne said, “it won’t hit our deficit.”

Article Source: http://gulfnews.com/business/property/international/opinion-stands-divided-over-uk-housing-programme-1.1224135