Following a progress report on the government’s Help to Buy scheme, the Council of Mortgage Lenders (CML) has called for more clarity on the exact details before lenders make a decision on whether to take part.
The programme is made up of two elements. The first consists of an equity loan with which you can secure at least 75 per cent of the cost of a property through a mortgage if you have just 5 per cent deposit saved. The remaining 20 per cent is covered by an equity loan from the government.
These loans are open to first-time buyers as well as home movers on properties up to the value of £600,000. It got up and running in April and will continue for three years; over 7,000 applications have already been made through the scheme.
The loan is interest free for five years; you will begin paying a fee on the sixth year after taking out the loan at a rate of 1.75 per cent, which will subsequently increase year on year based on the Retail Prices Index plus 1 per cent.
You will own the home and can sell it at any time but, of course, you will still have to pay back your equity loan if you sell before it is paid off.
The second element of the Help-to-Buy programme is the mortgage guarantee scheme, which is offered to anyone who wants to buy a new build or existing property from January of next year, to the tune of £130 billion. The property value limit is the same as the equity loan side of things, at £600,000.
Regarding the mortgage guarantee element, the CML has been advising government on a whole range of operational issues that need to be resolved, to enable lenders to participate in the scheme.
Some of the necessary details are now becoming available, and the CML hopes that the government will shortly be able to confirm the remaining details, particularly the commercial fee for lenders to participate and how capital relief will work, to enable lenders to make an informed choice about their participation.
The CML has consistently emphasised that, to be successful, the Help to Buy mortgage guarantee scheme needs to:
- be straightforward for lenders to implement and administer (particularly given the short timescale available within which systems changes need to be made);
- have clear success criteria, and a clear exit strategy – the three-year nature of the scheme is subject to review by the Financial Policy Committee; lenders do not expect to see the scheme become permanent or semi-permanent by default; and
- be accompanied by an equivalent government focus on the supply of new housing (not just the supply of credit), to avoid the unwelcome effects that stimulating demand without also increasing supply would create.
CML director general Paul Smee commented: “The mortgage market is open for business, and it is clear that government support has helped to create more favourable market conditions for home-buyers. Lenders, whether they choose to participate in the guarantee scheme or stay outside, will continue to do their utmost to meet households’ needs for mortgages, but always in a way that is responsible.”
