There has to be a permanent replacement for the government-supported Help to Buy mortgage guarantee scheme or first-time buyer numbers are bound to go down again, the Intermediary Mortgage Lenders Association (IMLA) says.
New research from the IMLA reveals that 65 per cent of lenders believe that competition in the high loan-to-value (LTV) market will fall if Help to Buy is allowed to expire at the end of 2016 without a permanent mortgage indemnity scheme to replace it.
This means that the main blow will be to the first-time buyer market because Help to Buy was instrumental in prompting lenders to offer more high LTV loans either using the government guarantee, private mortgage insurance or independently. A recent report by Genworth and Moneyfacts showed product numbers at 95 per cent LTV reached a post-recession high of 181 at the start of 2015.
The majority of brokers and lenders expect that the number of first-time buyers will drop and the access to homeownership will be affected if the scheme ends without a successor in place. IMLA’s research shows that three quarters (75 per cent) of brokers support the above statement. Of the lenders, 65 per cent believes first-time buyer numbers will shrink and a wide majority of 85 per cent expect a decline in home ownership.
IMLA has called for UK political parties to address this issue in their election manifestos and pledge to implement a permanent state and/or privately backed mortgage indemnity guarantee that can support high LTV mortgage lending in the long term. This would relieve the pressure of capital requirements on lenders, which limit their capacity to offer these loans.
Even though the industry is concerned about the Help to Buy scheme ending, both brokers and lenders expect it would be scaled back in 2015, IMLA’s research reveals. Half (51 per cent) of brokers and 40 per cent of lenders consider the most likely action to be taken by the Bank of England’s Financial Policy Committee this is would be to reduce on Help to Buy.
A very small proportion of brokers (14 per cent) and lenders (10 per cent), however, believe a scale-back would benefit the market.
Peter Williams, executive director of IMLA, commented:
“The Help to Buy mortgage guarantee has breathed new life into the market and opened the door to more prospective homeowners without sacrificing standards when it comes to affordability checks. It is encouraging to see more lenders offering 95% LTV products outside of the scheme – but it would be a big gamble to rely on this continuing without the boost that the government has brought to the first time buyer market.
“Homeownership continues to fall, especially among younger adults², and letting Help to Buy expire without a permanent replacement will be another nail in the coffin of the ambitions of many people to own their own home.
“Capital requirements for lenders are increasingly demanding and are a major disincentive to support first time buyers unless they have a significant deposit. We need a long term plan to replace Help to Buy 2 with a mechanism that enables more activity and promotes a more inclusive housing market without sacrificing financial stability.
“In addition, if the FPC was to consider action in 2015 on the scheme, we would expect this to be supported both by strong evidence and full consultation rather than a sudden intervention. With a stabilising housing market, the pressure to act is reduced – and with access to homeownership so evidently a continuing problem, our hope and expectation is that the FPC will not act on impulse.”
Adrian Gill, director of estate agents Your Move and Reeds Rains, also stresses the importance of Help to Buy:
“A fusion of economic factors is alleviating some of the financial burden of forming a deposit. Wages are starting to recover and inflation has fallen to a record low, meaning buyers have slightly more cash to play with day-to-day. And stamp duty fees were slashed for many new buyers when the government reformed the old slab system, freeing up further funds. It’s still difficult to save – with savings rates tied closely to the low base rate. But it’s easier to put cash aside than it was a year ago.
“However, property prices have pushed a new record for first-time buyers, meaning these extra funds are being diverted directly into larger deposits. Putting together a deposit to buy a property remains one of the most arduous tasks for prospective home-buyers, and schemes like Help to Buy are essential to allow the swathes of buyers reliant on higher LTV mortgages to get onto the housing ladder.”
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