Chancellor George Osborne has claimed that high-LTV mortgages are the sign of a healthy society rather than "exotic weapons of financial destruction".
Speaking in London, Osborne defended his housing policies by claiming they had forced down mortgage rates and raise affordability, and helped get the UK economy moving again.
He denied Help to Buy was creating a housing bubble, but said it was encouraging more property development instead. His comments have been backed by lenders as "common sense".
Osborne said: "The government's Help to Buy scheme is a sensible, time-limited and necessary financial intervention to fix a specific financial problem: the dramatic reduction in the availability of high loan-to-value mortgages.
"The median LTV for first time buyers has fallen from a long term average of 90% to just 80% now.
"This change is not something we should welcome, it is both a market failure and a social problem - imagine if you'd had to find twice as big a deposit for your first home."
Osborne added: "90% and 95% LTV mortgages are not exotic weapons of financial mass destruction - they are a regular part of a healthy mortgage market and an aspirational society.
"Help to Buy mortgages will all be repayment mortgages, not interest-only mortgages, so borrowers will rapidly build up a larger equity buffer within just a few years even in the absence of any house price growth.
"Some claim that Help to Buy will boost demand but not supply, but again the evidence suggests otherwise. A report last week by former MPC member Charles Goodhart, now at Morgan Stanley, estimated that Help to Buy could increase housing starts by more than 30% between 2012 and 2015."
Charles Haresnape, managing director of residential mortgages at Aldermore, backed Osborne's comments: "It's good to hear the Chancellor talking some much needed common sense about higher LTVs in the mortgage market.
"Lenders should be able to provide 90-95 per cent loans without onerous conditions attached - at the moment these loans are pretty difficult to qualify for - but as long as the borrower can afford the repayments there shouldn't be an issue.
"It's time to ditch the stigma attached to higher LTV mortgages and focus on whether the loan is affordable for the customer.
"More broadly, lenders will take a common sense approach to underwriting, with the Mortgage Market Review reinforcing this. The need to ensure affordability will act as a natural brake on the risks that could arise from high LTV lending."
Comments
"It's good to hear the Chancellor talking some much needed common sense..."
OMG as our American cousins might say.
Just cannot get enough boom and bust in this island's housing market. The next bust, say around 2016, could easily take more than a decade to repair.