One of the UK Government’s flagship schemes aimed at helping first time buyers onto the housing ladder will close at the end of 2016, it has been confirmed.
The Help to Buy mortgage guarantee will close for new loans at the end of December with the move receiving some criticism despite the fact that it was said when it was introduced in January 2014 that it would be for a fixed period.
In a letter to the Bank of England the Chancellor Philip Hammond said the scheme would not be extended beyond 2016. ‘The high LTV mortgage market has become less reliant on the scheme as confidence has returned. There are now over 30 lenders offering 90-95 per cent loans outside the scheme,’ he said in the letter.
‘This reflects the fact that the scheme was introduced with a specific purpose that has now been successfully achieved and, as such, I can confirm that it will close to new loans at the end of 2016 as planned. I will inform participating lenders,’ he added.
There are concerns that it will make it harder for first time buyers but experts have pointed out that it is not sustainable to have subsidised mortgages indefinitely as it was a measure put in place at the height of the economic downturn.
The other Government schemes are continuing with loans for first time buyers for new build properties and the Help to Buy Isa, both of which are popular as shown by the latest figures released last week by the Department of Communities and Local Government (DCLG).
‘It was neither desirable nor sustainable for high loan to value (LTV) lending to be carried permanently on Government shoulders, but attention must now focus on ensuring the right commitments and support structures are in place, so that help for aspiring homebuyers with modest deposits remains on the table without building up extra risk in the financial system,’ said Patrick Bamford, business development director for AmTrust International, Mortgage and Special Risks.
However, he explained that there are concerns that the lengthening shadow of higher capital requirements for lenders could put new barriers in place. ‘The Help to Buy experiment proves that activity can be stimulated while effectively managing risk, and it is vital that the option to get capital relief via private mortgage insurance remains open to lenders in the interests of maintaining and improving competition,’ he pointed out.
‘Help to Buy has established a culture of high LTV protection in the UK mortgage market by insuring lenders against economic risk, and it would seem imprudent to abandon this principle at precisely the time when uncertainty has returned following the Brexit vote,’ he added.
‘Now is not the time to take our foot off the pedal. For 21 years from 1982 to 2002, the typical first time buyer deposit was 10% or less, but even with Help to Buy in place, this has remained at 17% or higher from 2013 to 2015. The country continues to face a crisis of access to home ownership and there will be a clear expectation on government and lenders to maintain their support for first time buyers,’ he concluded.
Russell Quirk, chief executive officer of eMoov, believes that while on the face of it, it might seem like bad news for would-be home owners, it marks a significant change in the Government’s housing policy and could lead to the promotion of the Build to Rent sector which would be welcomed by many.
‘Although it will be seen as an attack on those looking to buy in an ever inflated market, the government’s record of actually building new property has been less than woeful and so any attempt to address the shortage of property stock should be commended at the very least. If we do see this supply and demand imbalance start to level out, prices will follow suit, resulting in a more realistic ask for those looking to buy,’ he added.
Andrew Tyrie, chairman of the Treasury Committee, said it was welcome news. ‘The Help to Buy mortgage guarantee scheme will not be missed.The Treasury Committee identified a number of problems with it, not least that it would inflate house prices and create a substantial liability for the taxpayer,’ he pointed out.
‘Government meddling in the mortgage market is fraught with risks and unintended consequences. The big challenge is to address the undersupply of homes, both to rent and to buy. Property taxation remains distortive. Taxpayer subsidies for home ownership increases demand and prices, and may do little or nothing to increase supply,’ he added.
