Should Taxpayers Underwrite Mortgages?

As someone who is trying to get on the housing ladder, I have considerable sympathy with David Cameron's promise to "restart the housing market and get the nation building again."
Lenders are currently demanding 20 per cent deposits for first time buyers - a tall order for people who can't resort to the Bank of Mum and Dad.
No surprise, then, that the average age of an unassisted first time buyer is now 37.
So today's news will be welcomed by many who are saving for a deposit.
The Government has said it will partly underwrite mortgages for newly built homes, helping up to 100,000 people or families.
They hope this will encourage banks to agree to lend to first-time buyers with deposits as little as five per cent.
So far so good?
The problem is - there are also some pitfalls.
If the housing market hits further problems, the taxpayer will be liable for considerable losses.
The Government's own press notice states: "The Government and housebuilders will help provide security for the loan, so if the house is then sold for less than the outstanding mortgage total the lender will be able to recover its loss."
Others are openly wondering whether the Government should be encouraging banks to lend to people who may not be able to afford the loans.
Allister Heath, Editor of City AM, in an article entitled "Let's Not Go Back To Sub-Prime Loans", writes:
"We have just come out of a major crisis caused by too much money being lent too cheaply to too many people who couldn't afford it, underwritten by the state. Let's not do this again.... Solvent buyers need to learn some patience - it should be normal to have to scrimp and save for several years before one can afford a deposit. And the Government needs to accept that not everybody will be able to own their own home - and that trying to boost credit at any cost is a recipe for disaster."
It poses a difficult question: to what extent should Government interfere with a market that they feel is not working?