He will reveal more details of the Government's plans to underwrite £130 billion of mortgage lending with state guarantees through the Help to Buy scheme, the first stage of which was launched in April this year and allows buyers to purchase new-build homes with deposits of just 5%.
The Chancellor is holding a meeting at Downing Street with builders who are affiliated with the scheme, such as Persimmon and Taylor Wimpey, as well as lenders such as Lloyds Banking Group and Barclays.
The mortgage guarantee scheme will now give buyers of all properties – not only new build – the ability to borrow with only a 5 per cent deposit. The government will guarantee up to 15 per cent of the home loan as an insurance policy for the banks, as long as the property is valued at less than £600,000. Existing homeowners can also use the scheme to remortgage their property.
There has been widespread criticism for the scheme, with some saying it risks inflating another housing bubble and creating huge amounts of housing risk for the Government - both former governor of the Bank of England, Mervyn King, and deputy governor Paul Tucker have expressed concerns over the risks involved.
Ben Thompson, MD Legal & General Mortgage Club, commented:
"The positive impact of the Government's Funding for Lending Scheme on mortgage pricing, combined with a recent lift in consumer optimism has helped the mortgage and housing markets to bounce back nicely in 2013. The two Help To Buy schemes have also been announced, the first of which (Equity Loan) has already captured significant interest from homebuyers.
“Some would therefore question the rationale of providing yet more stimulus to this market, especially as house prices are starting to recover well. This recovery is however patchy with some regions remaining very flat, therefore it could easily be argued that this latest Guarantee Scheme is very much needed.
“Lenders will of course have to find a way to participate that makes commercial sense, as well as not taking on unnecessary high risk - it will be interesting to see how this picture unfolds, however this scheme will have a further positive impact on the mortgage and housing markets.
“Whilst we can see that the Government fully appreciates that we need a healthy housing market and is seeking to create those conditions through a variety of stimuli, it remains completely clear that it is just as important, if not more so, to focus relentlessly on freeing up the ability for many more new homes to be built in the right areas in the UK, specifically to match pent up and future rising demand. This is important for many social and economic reasons, and in conjunction with a rising market would help to control house price growth. Yes we need a healthy market, but a healthy housing market has to be one that allows First Time Buyers to be able to afford to buy at a sensible age."
