The Treasury Select Committee has asked the Bank of England to clarify its Help to Buy role as property prices rise.
The Bank of England has received new powers from chancellor George Osborne to ensure the Help to Buy scheme did not result in a property bubble.
House prices are likely to rise and benefit existing homeowners such as remortgage buyers giving them an opportunity to release capital which they can use to improve their home such as adding an extension or new kitchen.
However, MPs are unclear about the “scope and limits” of the Banks role and the degree it can modify the scheme.
How Help to Buy works
The first phase of the Help to Buy scheme is available for new-build properties enabling people to buy homes with a 5% deposit and receive a further 20% interest free equity loan guarantee from the government.
The remaining 75% would be a mortgage loan from a participating lender and the scheme was limited to new builds. Phase two can be accessed by first time buyers and home movers where the government guarantees 15% of the property value.
The scheme requires a 5% deposit from the homebuyer and a 95% mortgage from a lender available on properties valued up to £600,000.
David Cameron has said the scheme has helped first time buyers with 75% of applications from outside of London and the south east. On average people borrow £155,000 and the average price is £163,000 compared to the UK average price of £247,000.
The scheme promotes new homeownership for people that are renting and is not available to switching remortgage buyers or buy-to-let investors.
Scope of Banks powers
To meet concerns from critics of the Help to Buy scheme creating a property bubble the Bank of England now has greater powers.
The Bank can reduce the £600,000 property value limit to reduce the size of the market affected by the scheme. It can also recommend to the Treasury to increase the fee charged for the government guarantee, currently set at 0.9% to lenders.
MPs are concerned the Bank could be influenced by government policy.
The Treasury Committee chairman Andrew Tyrie has asked for clarification on how the bank can remain independent and fulfilment of its statutory responsibility for financial stability.
Help with the deposit for a new home can come from family members as the equity release buyer can access cash using a lifetime mortgage and gift to a child or grandchild.
What are your next steps?
Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.
Learn more by using the mortgage cost calculators, equity release calculator and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to help maintain your standard of living as costs rise or even buy a more expensive home.
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