The chief of Homes England has defended the body against claims that taxpayers could be overexposed to the risk of loss on its Help to Buy loan portfolio.

Speaking to MPs on the Housing, Communities and Local Government Committee yesterday, Homes England chief executive Peter Denton was asked about the level of risk that the taxpayer is shouldering through the Help to Buy equity loan scheme.

Conservative MP for Milton Keynes North Ben Everitt said: “There was a National Audit Office report in 2019 that flagged that Homes England might be overexposed in relation to the scheme. Have you made an assessment of, in the event of a market downturn, how many of these loans would be written off and to what extent that would cost the taxpayer?

Denton responded that the Help to Buy book was already valued in a “relatively conservative fashion” compared to the way that mortgage lenders value their loan and property portfolios.

He said: “it’s valued as if everyone redeemed their loans today, at today’s values, and on that basis.

“It is then we apply a certain set of characteristics relating to expected loss. “So we take certain scenarios, and they can range from very, very minor, one 1%, changes in value all the way through to scenarios that relate to about 11% and 12% and that’s based on ONS data. 

“In addition to that, we focus that analysis on stress-testing, both arrears levels, and also other factors that would typically go into a downturn.

“And then we focus on again, in technical parlance, things called loss given default, so that if a default occurred, what would be the resulting loss from that situation. 

“Because there’s not strong data on that the agency working with the Department is taking a relatively conservative view and assumes about a 35% loss given default, it’s quite high. 

“That flows through finally into review of the various security positions we have. 

“If I bundle that back together that is a relatively strong process already. “And there’s monthly stresses, and then more importantly, quarterly deep, deep stresses that we look to review.”

However, Denton said that Homes England’s analysts did have to make a value judgment as there were certain factors that make risk modelling more complex.

Denton added: “One of the biggest management judgments we have in our accounts is the valuation and approach to Help to Buy. 

“And that is not because it is intrinsically risky, it is simply that it is often a value judgement.”

For example, he said that normal housing market risk modelling would use Office for National Statistics house price data, however an additional layer of analysis is needed for the Help to Buy book because the ONS index includes older properties as well as new-builds, whereas Help to Buy only covers new homes.