Help to Buy mortgage guarantee scheme
The early introduction of the second phase of the Help to Buy mortgage guarantee scheme has certainly caused some frenetic activity in the housing and mortgage markets.
Many lenders have been caught on the back foot as all had been anticipating a commencement date of January. Only Nat West / RBS had products available to prospective borrowers on launch day. However, Halifax (Lloyds Banking Group) has products from today.
HSBC, Virgin Money and Aldermore have all committed to entering the scheme but we do not yet know specific dates and entry is realistically likely to be the New Year. Other mainstream lenders have been more guarded in announcing their plans but we expect them to get involved over the coming weeks and months.
However, for many their priority at this point is ensuring their staff and systems are ready for the introduction of the Mortgage Market Review (MMR) in April 2014.
The early implementation of the Help to Buy scheme appears to be a political decision following announcements by the Labour party at their conference in which they were pledging their future support for “hard pressed consumers” in holding down energy costs and in taking on the energy companies.
Whatever the rationale, we believe the initiative is important in helping to bring about the return of a more normally functioning housing and mortgage market.
In the period 1997 to 2007 significantly more than a million housing transactions took place each year in England & Wales. In the period 2008 to 2012 the number of transactions has not been above 662,000 with numbers averaging 640,000 over the last five years.
These numbers quite clearly demonstrate how constrained the market has become, with many would-be borrowers citing the inability to save the level of deposit required by lenders as their primary reason for not entering the property market.
The Help to Buy mortgage guarantee scheme is designed to provide lenders with the additional comfort to enable them to once again offer 95% LTV value mortgages. In the 20-year period prior to the financial crisis, 95% LTV mortgages were the norm and were readily available from many lenders.
Since the onset of the financial crisis in 2008, these products all but disappeared. The introduction of this scheme is to help create the environment that allows lenders once again to offer these products to borrowers: specifically, to those who can afford mortgage repayments on loans at this level but who have been unable to save the level of deposit that lenders have, until now, required.
Other beneficiaries of the scheme should be those first-time property sellers whose equity has been eroded due to falls in property values. Many of these borrowers who ordinarily would have moved house have been unable to do so due to little or no equity, combined with the lack of high loan to value mortgage financing.
If the Help to Buy mortgage guarantee scheme is taken up by a broad range of mortgage lenders, it could become a significant enabler for the housing market to continue its recovery back to a more normal level of transactional activity.
By Brian Murphy, Head of Lending at Mortgage Advice Bureau
If you need advice on this scheme or anything else to do with buying or selling your property contact AMS Solicitors – conveyancing specialists based in Preston.