UK agrees fees, capital relief for mortgage plan - source

MANCHESTER, England Mon Sep 30, 2013 2:40pm BST

A sold board hangs outside a property in Altrincham, northern England July 3, 2013. REUTERS/Phil Noble

A sold board hangs outside a property in Altrincham, northern England July 3, 2013.

Credit: Reuters/Phil Noble

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MANCHESTER, England (Reuters) - Britain has agreed the capital relief and fee structure for its mortgage guarantee scheme which it plans to introduce in the week starting October 7, a government source said on Monday.

"We expect the majority (of the) lenders will ultimately participate," the source, who spoke on condition of anonymity, said. "We expect other lenders to confirm in the weeks and months ahead - between now and January - that they will be participating - probably not all of them but the vast majority.

"House prices are basically flat in most of the country so this is a broad recovery from an extremely low base," the source said.

Prime Minister David Cameron has brought forward the launch of the mortgage guarantee programme which is designed to help people who have been frozen out of the property market by the soaring size of deposits that are now required.

But some economists have said the plan risks stoking a housing bubble. The government has asked the Bank of England, via its Financial Policy Committee (FPC), to make annual assessments of the plan, starting next September.

Asked whether Britain would tweak the scheme if there were signs of a bubble, the government source said:

"We have specifically said we are going to give the FPC a role every September in looking with us at how the scheme is working and then advising us whether the key parameters need to be changed - that is the fees and the price cap.

"So the fees are the fees the lenders pay us for the guarantee. If the FPC were to say you should raise the fees that would make mortgages more expensive and obviously have a dampening effect. If they specifically thought there was a problem in London and the southeast they could recommend we reduce the price cap from 600,000 (pounds)."

Help to Buy was originally launched to help buyers of new properties and the second phase, originally due to start in January, was designed to assist buyers who might otherwise be unable to afford a down payment on a home.

Properties worth up to 600,000 pounds would be eligible for the second phase.

The government source denied any suggestion that the announcement on the acceleration of the second phase had been rushed to coincide with the Conservative Party's annual conference which is being held in Manchester, or in response to a proposal by the Labour party to freeze energy bills.

"We nailed down the fee structure and capital relief over the last week - we have been planning to launch this scheme earlier for some time."

(Reporting by Guy Faulconbridge and Andrew Osborn; editing by Kate Holton and William Schomberg)

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