MPs this week have admitted that the mortgage revival scheme is failing.
The Communities and Local Government, (GLC) Committee stated that the £50 billion asset-backed guarantee scheme (ABS) which was launched to kick-start the UK property market was "doomed to fail".
As a result, it added that further measurements must be taken if the plan is to work and mortgage lending is to receive a boom again.
Calls for capacity and skills in the Great British construction industry to be protected were also urged in the committee’s report.
The warning comes after the committee revealed that it took a decade for the construction sector to recover in the UK after the last financial downturn.
Mortgage flop
The asset-backed scheme announced in the 2009 Budget, provides promises to lenders’ of a
mortgage-backed safety net, a step that allows them to sell on mortgages to investors, increasing new money to lend to customers.
However, restrictions on which institutions can take part, along with the types of
loans it covers, meant that problems arouse and it had so far, limited success.
The mortgages being securitised must also have been written after January 1 2008, while they cannot have had a higher loan to value ratio than 90% when they were first arranged and the homeowners must not have adverse credit histories. All these factors make it increasingly difficult to purchase a mortgage.
Mark Clare, from a property agency, stated that mortgage regulations must be less strict, if the industry is to pick itself up.
He said: "We have seen higher sales rates, lower cancellations and prices levelling. We are not however going to see a sustained improvement in trading conditions until the availability of mortgage finance, particularly in the higher loan to value segment, recovers."
The MP’s report came in two separate parts, by the Royal Institution of Charted Surveyors, (RICS) and PricewaterhouseCoopers. Both noted that UK property prices would struggle to make significant improvements until mortgages were more accessible.
Home loans low
Figures reflect these findings. Whilst mortgage lending increased in May, the number of home loans was still 28% lower than in 2008.
Chair of the committee, Dr Phyllis Starkey, stated: "In its current form the ABS is a leap that reaches across only half the chasm: impressive, but doomed to fail."
She further added: "If we are to meet house-building targets, then CLG ministers and senior officials must maintain pressure on the Treasury to bring forward new measures to get the mortgage markets moving."
According to the report, the government emphasised too much on promoting home-ownership, and ignored the rental sector.
She added: "We welcome the additional investment the Government has made in building homes for social rent and in low-cost home ownership. But this won't on its own be enough to meet demand. The availability of private mortgage finance is crucial, and the key to unlocking that finance is the Treasury's asset-backed guarantee scheme."
Dr Starkey commented: "We now need a vigorous debate to review this approach and formulate a more coherent vision to guide effective housing policy and investment into the future."
