Mortgage lenders push ministers for extra housing help

The government could help five times as many people as it currently assists to own their own home by backing a new loan scheme being devised by lenders, it was claimed today.

At the moment, around 8,000 households are given government help to buy, or part buy and part rent, their homes under various low-cost home ownership programmes.

According to a new paper published by the Council of Mortgage Lenders (CML), this could increase to as many 42,500 under a new way of subsidising home ownership.

The paper, published in its quarterly magazine Housing Finance, explained that if the government backed interest-free loans to cover 25% of the value of homes, with a conventional mortgage covering the rest, it would help more than 25,000 households who would otherwise be unable to afford to buy their own home.

The paper added that if the loans covered 35% of the home's value it would help 42,500 families onto the property ladder.

Under the scheme, loans are paid off on a like for like basis when the home is sold. So if the loan represented a third of the value of the home when it was bought, a third of the value of the home would have to be repaid when the home is sold.

The paper comes at a time when the CML is in talks with Whitehall officials about government backing for such a scheme.

At the same time, former cabinet minister Stephen Byers is urging ministers to offer 5 million social housing tenants interest-free loans to cover the cost of a deposit for buying a home.

But the number of people helped is limited by the availability of government funds.

The CML paper argues that there would be more scope for such schemes if they were funded by the private lending market rather than the state. But it argues that the market will only take off if the government helps to underwrite or "pump-prime" the scheme.

It argued that this would represent a better use of public money than traditional low-cost home ownership programmes. The CML said: "These programme remain relatively small-scale in relation to demand and do not make best use of public resources."