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Written by rosalind renshaw

More high-level concerns have surfaced over the Government’s Help to Buy mortgage guarantee scheme aimed at people with only 5% deposits.

The International Monetary Fund has warned it could backfire, causing house prices to rise and shutting first-time buyers out of the market after it launches next January.

Separately, the Council of Mortgage Lenders director general Paul Smee has warned that there must be a proper exit strategy to avoid a market bubble and bust.

Smee, referring to the ending of the Stamp Duty holiday for first-time buyers in March last year, said: “Schemes which end in a cliff-edge distort the market and tend to create a bubble on one side and a desert on the other.”

Smee also said that the taxpayer-backed Help to Buy scheme marked a shift away from schemes concentrating on newly-built property, and widened access for a broader group of borrowers whose purchase is being delayed by the fact that lenders are primarily offering mortgages at a loan-to-value ratio of 80%.

Smee said: “I would really like to be clear on what constitutes success for the Government and what its exit strategy from the scheme will be after three years.”

Help to Buy, announced in the Budget, is due to run for three years from next January. Taxpayers will effectively encourage lenders to lend 95% mortgages on the basis that they will guarantee 15% of the mortgage on properties – both old and new – worth up to £600,000.
 
However, the International Monetary Fund has added its voice to the mounting warnings.

It said: “This measure may temporarily help boost confidence in the housing market, but there is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing.”

The IMF said that this risk could be mitigated by more house building. It called for taxes on developers to stop them holding on to land banks in order to wait for greater profits.

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