The Government’s mortgage indemnity guarantee scheme will push up house prices but do little to stimulate house building, according to the Office for Budget Responsibility.
The OBR member and economist Stephen Nickell made the remarks while giving evidence to the Treasury Select Committee today, having been asked what impact the OBR thought the government schemes would have.
On the specific point of the Mortgage Indemnity Guarantee Help to Buy scheme, Nickell responded that house prices will go up in the short-term but building is unlikely to pick up over a longer period of time.
He said: “The key issue is: is it going to drive up house prices? By and large, in the short-term, yes it will. But, in the medium term, will the increased house prices stimulate more house building? Our general answer to that would be “probably a bit”. But historical evidence suggests not very much.”
OBR chairman Robert Chote said the planning system, as it currently stands, is holding back the supply of new housing stock.
He said: “The planning system remains an important reason why the supply of new housing is relatively inelastic.”
The mortgage indemnity guarantee, which is being launched as part of the Help to Buy, will be open to borrowers wanting to buy a new-build home or an existing property when in launches next January.
The Government will offer a guarantee of up to 15 per cent of the purchase price, with the borrower putting down a deposit of between 5 and 15 per cent.
The fee lenders will be charged for the Government guarantee has yet to be determined.
The guarantee will last for seven years and lenders will also take a 5 per cent share of net losses above the 80 per cent threshold, to ensure lenders do not lend recklessly. The Treasury says its liability is expected to be no more than £12bn on £130bn in guaranteed mortgages.