It delivered 16% of the year on year rise in first time buyer loans and helped to protect high loan to value products from falling numbers and higher interest rates, says the latest Genworth/Moneyfacts mortgage LTV tracker report.
The mortgage guarantee scheme loans to first time buyers made up just 3.9% of the total 148,200 first time buyer loans between October 2013 and March 2014 according to data from the Council of Mortgage Lenders and in London it was just 1.4%.
But the tracker report points out that first time buyer numbers during the first six months of Help to Buy were 35,700 higher than the equivalent period a year earlier as the mortgage market continued its recovery. Those using Help to Buy were 16% of this, meaning that one in six of these extra first time buyers was able to buy with a 5% to 15% deposit via the mortgage guarantee programme despite average deposits for the whole market remaining high in historic terms.
‘These figures refute the notion that Help to Buy has flooded the market and show it delivering what it set out to achieve. What the scheme is doing, as a fraction of total first time buyer activity, is offering hope to those who struggle to raise the average deposit but can still afford repayments and pass affordability checks,’ said Simon Crone, Genworth vice president, Mortgage Insurance Europe.
‘Responsible lending at higher LTVs has a vital role to play, especially when it is getting tougher for people on good wages to save a deposit as prices rise. Builders will only build if people can buy, which is why prudent high LTV lending is an essential part of the picture,’ he explained.
‘Without Help to Buy, we would return to a closed off market that is the sole preserve of the privileged few. Until there is a long term plan to cement the future of high LTV loans, this is a real concern and demands a rational appraisal from government and the Bank of England,’ he added.
The report also points out that the Help to Buy effect meant the availability of mortgage products at 90% and 95% LTV during May withstood the first impact of the Mortgage Market Review (MMR).
Product numbers fell in all but one LTV band during May following MMR’s introduction on 26 April. The 90% LTV range was the only one to record any growth with three new products pushing the total to 375. Six products were withdrawn from the 95% LTV category, but this fall was surpassed by far greater losses below 90% LTV.
The product range at 95% LTV has grown the most year on year thanks to the galvanising effect of Help to Buy mortgage guarantee. From a low base, it has gained almost twice as many products as any other category and grown at 15 times the rate of the next best performing range (90% LTV).
Total products in the segments underpinned by Help to Buy, 85%, 90% and 95% LTV, have grown by 147 or 16% in the last year to 1,041. Almost two in every three of these new products offer a maximum LTV of 95%.
‘The ability to get a mortgage with a 5% deposit makes a world of difference to buyers without the financial muscle that comes with parental support, an inheritance windfall or disproportionate sacrifice over years of scrimping and saving,’ explained Crone.
‘Help to Buy has reinvigorated high LTV lending and helped product numbers to stand up in the face of the new mortgage rules. But withdrawing the scheme would have far graver consequences for first time buyers. Without a clear long term strategy and a sustainable plan to support this part of the market, we risk seeing lenders turn their backs again when government support expires,’ he added.
The report shows that product pricing at 95% LTV has escaped the full effect of rising interest rates so far in 2014. The average two year fixed rate at 75% LTV has risen by 16 basis points (bps) since January, compared with 12bps at 90% LTV and just 9bps at 95% LTV.
Among five year fixed rate products, the average 75% LTV rate has risen by 35bps, compared with just 11bps at 95% LTV.
‘Competition in the high LTV market has limited price rises for 95% LTV products since the start of the year. While any change in the Bank of England base rate has implications for existing as well as new mortgage holders, the new MMR rules mean borrowers are only being accepted if they can cope with higher rates than we see today. Lenders involved in Help to Buy have been MMR compliant from the start and taking a careful approach,’ Crone said.
‘Lenders using private mortgage guarantees offer some of the most competitive rates on the market. Shifting the risk of the government scheme to the private sector would keep this vital market alive and move us one step closer to a permanent fix to a long term problem,’ he pointed out.
‘It would also help to improve on the off the peg government guarantee and offer more flexibility to lenders who each have their own stance on high LTV lending, as Lloyds’ product changes showed recently,’ he added.
