A former executive at the US state-backed lenders Fannie Mae and Freddie Mac has warned of the dangers of the forthcoming 95% mortgage Help to Buy scheme – while a UK pundit has said it could prompt a ‘bloodbath’ in the housing market.
The 95% mortgages, backed by an indemnity from the taxpayer, will be made available to purchasers of all types of homes – old, as well as new – from next January.
Cliff Rossi, now a finance professor at the University of Maryland, has told of the potential risks to UK taxpayers who will be underwriting the mortgages, which will be lent on homes worth up to £600,000..
Fannie Mae and Freddie Mac were used by successive US governments to promote house buying. The banks became unstuck when the housing market crashed and taxpayers had to rescue them to the tune of £125bn.
Fannie Mae has just returned to annual profit for the first time since 2006, but still owes the US taxpayer billions.
Rossi said that the UK government must have its “eyes wide open” to ensure UK taxpayers are not also left with significant losses.
He said the risk of a borrower defaulting must be accurately assessed, to prevent UK taxpayers ending up “sitting on a lot of potentially risky loans”.
George Osborne has said that the Help to Buy scheme will run for only three years, but Rossi said the US experience showed that once a government intervenes in the housing market, it is harder for it to step back.
Ed Stansfield, property expert at Capital Economics, said of Help to Buy: “In the worst case scenario, it pushes house prices up, so when interest rates do go up, we have another bloodbath in the housing market.”
Comments
Totally agree, I can't believe they are risking Tax Payers money. With all the talk of reckless RBS today the government has learned nothing