New Housing Minister Kris Hopkins said the Help to Buy equity loan scheme had given the housing market a kick start by driving up the rate of house building and helping hard working families buy a home.
Visiting a new housing development in Northampton with the Prime Minister, David Cameron, Hopkins said government action to restore confidence to the housing market was working, with over a third of a million new homes built over the last three years, including 150,000 affordable homes.
Under the equity loan scheme buyers can purchase new build homes with just a 5% deposit, facilitated by an equity loan from the government of up to 20% on properties with a value of £600,000 or less.
Since the launch of the Help to Buy equity loan scheme in April, there have been 15,410 reservations for new build homes, and nearly 30,000 people have bought a new build property through a range of government backed home ownership schemes over the last two years, according to Hopkins.
He pointed out that house building is growing at its fastest rate for 10 years, and house builders are pledging to build on the momentum created by Help to Buy. It means that housing supply is now at its highest since the end of the housing boom in 2008, with 334,000 new homes built over the last three years.
In the most recent quarter, housing starts were up by 33% on last year, and planning approvals for new homes were up by 45%. In the year to June 2013 88% of planning applications were approved, a 10 year high.
‘With over 15,000 reservations for new build homes in six months, it’s clear the first part of our Help to Buy scheme, the equity loan, has captured the imagination of the public and is boosting the supply of new homes across the country,’ explained Hopkins.
‘Our policies on housing are working. House building is growing at its fastest rate for 10 years, and the tough decisions we’ve taken to tackle the deficit have kept interest rates low and are now delivering real help to hardworking people,’ he added.
Yesterday the Prime Minister and Chancellor George Osborne launched the second part of Help to Buy, the mortgage guarantee scheme which will also be available on existing properties with a value of £600,000 or less. Lenders will be able to offer a 95% loan to value mortgage, facilitated by a government guarantee to the lender of up to 15% of the value of the property.
‘I’m delighted we’ve launched the second part of Help to Buy, the mortgage guarantee, which will strengthen the package of measures that have already done so much to restore confidence in the housing market,’ said Hopkins.
Paul Broadhead, head of mortgage policy at the Building Societies Association (BSA), welcomed what he called ‘a sustained focus on housing,' in particular helping those with smaller deposits achieve their ownership dreams.
‘Many building societies and other mutual lenders have been providing mortgages for buyers with deposits of 10% or less throughout the whole of 2013, with 25,000 mortgages granted in the first eight months. With the scheme details now published, BSA members will be considering whether they can best serve their customers by continuing to lend as they have been, outside the Help to Buy mortgage guarantee scheme, or by directly participating,’ he explained.
‘From a consumer's perspective it makes no difference, provided mortgages to creditworthy borrowers with small deposits are available. Whatever happens, the appetite of BSA members to lend, with a proportion to those with smaller deposits, remains undiminished,’ he added.
Royal Bank of Scotland and Natwest are offering a two year, fixed rate mortgage beginning at 4.99% for those with a 5% deposit, with no fee, and other major banks and building societies such as HSBC and Virgin Money said they will join the scheme in a few months.
The Halifax said that its products at 90 to 95% LTV will be available for both first time buyers and home movers from the end of this week (Friday 11 October). It will be taking applications at a two year fixed rate of 5.19% for those who have a 5% deposit with a fee of £995.
‘This scheme will help first time buyers and home movers who can afford a mortgage but until now, have struggled to raise the necessary deposit. Through the scheme, these products will make mortgages more accessible, providing a genuine solution for those who have not been able to get on, or move up, the ladder,’ said Stephen Noakes, Halifax mortgage director.
However, one mortgage expert said other lenders might be more cautious. ‘It speaks volumes about Help to Buy that other major lenders haven't signed up to the scheme yet. There is a definite sense that they are waiting to get some clarity on how the scheme will work and to see how many people apply for the mortgages,’ said Steve Williams Gocompare’s mortgage expert.
‘A 95% loan to value mortgage is very rare in the current market, but the rates on offer are still relatively high when you consider that there are other deals out there at the moment offering interest rates as low as 1.99% to 2.5% for a two year fixed mortgage. However, to get that rate you would need a 65% to 75% deposit,’ he explained.
‘Even if you haven't got a large deposit you still need to shop around, examine the market, get some expert advice and make sure that this is the right mortgage for you. But, if you have already saved as much as you can for your deposit, and a 95% mortgage won't stretch your monthly outgoings, then Help to Buy is definitely worth considering, but go in with your eyes open. This scheme isn't a panacea for the housing market and it may not be for you either,’ he added.
HSBC is an example of a bank that believes it is already offering competitive higher LTV mortgages. Chief executive Antonio Simoes said that the bank wants to be supportive to first time buyers and recognises that saving the necessary deposit can be a real challenge.
‘HSBC already offers some of the most competitive higher LTV mortgages in the market and currently promise to beat or match rates from our high street competitors at 90% LTV,’ he said, adding that the bank will eventually participate in Help to Buy and offer mortgages up to 95% LTV later this year.
All 90 to 95% LTV mortgages will only be sold on an advised basis in the bank’s branch network, and, in line with all HSBC mortgages, will not be offered through mortgage brokers and its policy of no interest only lending on mortgages above 75% LTV means that its Help to Buy mortgages will be available on a capital repayment basis only.
Consumer giant Which? said that the new scheme will undoubtedly encourage first time buyers who previously felt locked out of the housing market. ‘It won’t make finding the right mortgage any simpler. We would always recommend that borrowers seek independent financial advice to find the best home loan for their individual circumstances. After all, lenders not involved in the scheme may well adjust their rates too and borrowers may find that a Help to Buy backed mortgage is not necessarily right for them,’ said Barney McCarthy, from Which? Mortgage Advisers.
‘Borrowers also need to be mindful that while there may be more mortgages available with a smaller deposit, lenders will still apply tough criteria requiring them to prove their suitability for the mortgage. We will continue to monitor the impact this scheme has on the housing market and how the Government intends to gauge its success,’ he added.
