Help to Buy not for second homes, says George Osborne

couple in home
Image caption Some 500 people a week have been taking advantage of Help to Buy

The chancellor says the second stage of the Help to Buy scheme, aimed at enabling more people to buy properties, will be closed to second home buyers.

George Osborne has called housebuilders and mortgage lenders to a meeting to discuss the details.

The first phase of the scheme was launched four months ago and provides equity loans for buyers of new homes.

From January next year, it will be extended to help buyers of existing homes.

It will allow people to buy with just a 5% deposit.

The government will guarantee a proportion of the loan to give the banks greater confidence to lend.

Bubble fears

Properties of up to £600,000 will come under the plans, although foreign buyers with no history of property owning in the UK, buyers of second homes and buy-to-let landlords will be excluded, Mr Osborne confirmed ahead of the meeting.

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Media captionGeorge Osborne: "It's not for second homes. They won't be allowed"

He said a mechanism had been drawn up to prevent second home buyers from taking advantage.

The biggest lenders, including Lloyds, RBS, Barclays and Nationwide, are being called into Number 11 to be to told to get ready for the launch of the new scheme.

With them will be representatives of the main housebuilding firms - many of whom say that a boost to the housing market will have the knock-on effect of spurring them on to build more homes.

Mortgage pick-up

The first stage of Help to Buy has been widely considered to have brought a lift in activity in the housing market.

Image caption The second stage of the scheme relates to old houses, rather than just new builds

New figures from the British Bankers' Association show that the number of mortgage approvals for house purchases rose again in June.

The figure reached 37,278 in June, up from 36,290 a month earlier, and 33% higher than the same month a year earlier.

This is a relatively early stage of the house buying process, but figures from HM Revenue and Customs (HMRC) revealed a pick-up in actual sales.

Transactions in the UK rose to 89,050 in May, the highest figure since November on a non-seasonally adjusted basis. In May 2012, there were 75,350 sales,

'Responsible' lending

Some housing experts have warned that the guarantee behind the scheme could create a new housing bubble.

The former governor of the Bank of England, Sir Mervyn King, said the scheme should not be extended.

The Building Societies Association and the Council of Mortgage Lenders (CML) have called for the government to outline a clear exit strategy for the end of the three-year scheme.

The CML also wanted to see the government focus on projects to stimulate the building of homes - so as not to create demand without supply.

This was echoed by the Institute of Directors (IoD).

"The housing market needs help to supply, not help to buy and the extension of this scheme is very dangerous. Government guarantees will not increase the supply of homes, but they will drive up prices at a time when it seems likely that house prices are already over-valued," said Graeme Leach, chief economist at the IoD.

"When the scheme is withdrawn any rise in prices that has taken place will be undermined, with potentially disastrous results. There is a real risk that the housing market will become dependent on the underwriting by government, making it very difficult politically to shut the scheme down. This should be of great concern.

"The world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages."

For his part, the chancellor is expected to tell lenders to apply stringent testing to borrowers to check they can afford repayments - and prevent a surge of reckless lending.

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