The government’s Help to Buy scheme, which will make 95 per cent mortgages available to prospective homebuyers, has been brought forward by three months and will now launch next week, increasing already prevalent fears of an imminent housing bubble.
The announcement has increased already highlighted fears of a housing bubble among some industry representatives, although PM David Cameron has denied that there will be any negative fallout of this sort.
David Copland, director of mortgage services for LSL’s financial services division questioned whether lenders were aware that the scheme was to be brought forward.
“I think that the Help to Buy scheme is a good idea as there are first time buyers and people trapped by negative equity all over the country that need a helping hand to get on the housing ladder, remortgage or move, but the announcement at the weekend still leaves too many unanswered questions. Only when we have these answers will we know what the scheme looks like and if the initiative will be worth anything.
“Key amongst these is whether any of the lenders knew this was coming or whether it is as much of a surprise to them as it is to the rest of us. Under the original plans for the Help to Buy scheme, lenders had to be MMR ready, with regard to affordability and income verification, before they could participate in Help to Buy – if that is still the case now it may significantly reduce the number of lenders who can offer the scheme, although I expect the state owned lenders to be under significant pressure to offer the scheme when it launches next week.
“We also don’t yet know the cost of the guarantee to lenders or if they will get capital relief on the scheme; if the guarantee costs are too onerous then this will pass through to mortgage rates, uncompetitive rates will mean there is likely to be minimum take up by borrowers and the scheme could be no more than a damp squib, although my expectations are that, at first at least, the government will need rates to be competitive as it has become their flagship scheme.”
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), comments: “Consumers have grown accustomed to a limited supply of 95 per cent mortgages ever since the recession, so the news of a bumper delivery ahead of schedule will rightly cause a wave of excitement. The Help to Buy mortgage guarantee has a clear purpose and will answer a real need by giving options to first time buyers and those homeowners who have seen their equity eroded and been unable to make their next move. It is undoubtedly a welcome initiative from a consumer point of view.
“A key ambition over the next three years must be to re-establish 95 per cent lending as part of a balanced and normally functioning market. With the government behind it, the market looks set for continued growth which will hopefully prompt a greater level of overall transactions and more willingness from lenders to get behind those buyers with limited deposits.
“Clearly there will be a flurry of activity as lenders bring their implementation and delivery plans forwards, once the final details of the scheme are confirmed. The important thing is for consumers to get clear, consistent messages about the mortgage guarantees, how they work and where they are available. Rather than becoming an overnight sensation, it would be in everyone’s best interests if the scheme is managed in a steady and sustainable way.”
Help to Buy will initially be available under the Nat West, RBS and Halifax brands but a Tory spokesman said that other banks are expected to take part over time.
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