Will Help to Buy really promote reckless lending?

The Government’s Help to Buy initiative, announced in yesterday’s Budget, is the latest in a string of schemes intended to kickstart the property market.

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Now at this point, I usually tear into the latest attempt to bring the housing market back to life.

After all, most of the schemes launched in recent years, if they’ve not been hair-brained, have done little more than tinker around the edges.

And while it’s true that Help to Buy isn’t perfect – for starters, it requires the mind of Russian chess grandmaster Garry Kasparov to fully understand its constituent parts – it does appear to be an improvement on previous Government initiatives.

What I believe might just make a difference with Help to Buy is the mortgage guarantee element, which, we’re told, will support up to £130bn of loans — on existing as well as new properties valued up to £600,000.

More details on the new mortgage guarantees for homebuyers will be released at a later date, but the bottom line is that they will remove a degree of risk from the lender.

It’s this risk that has in part prevented the Funding for Lending Scheme working in any material way at higher LTVs. After all, cheap money is far less attractive to a lender than safe money, i.e. lower LTV loans — or in this case, higher LTV loans with lower LTV risks.

It’s because of this that I think Help to Buy might — and that’s a very big might – make an impact on the property market.

Saying that, what we need to remember is that this isn’t all about lenders. It’s also about higher LTV borrowers, who often won’t meet the necessary affordability criteria. Help to Buy will achieve nothing if people can’t afford to buy.

It’s just a shame we have to wait until January 2014 for the new mortgage guarantee scheme to launch. If it does start to stimulate the bottom of the market then it will be to the benefit of the market as a whole.

Already, some commentators have questioned whether the new mortgage guarantees will lead to reckless lending. After all, if the state is underwriting the loans, where’s the risk for the lender?

Personally, I can’t see this happening. The high street banks are still reeling in the aftermath of 2008 and that the’s absolute last place they want to go back to.

The mortgage market will remain conservative, just slightly less conservative, with the mortgage guarantees, than it was before.