One year on from the policy's unveiling in the 2013 Budget, new research from the Intermediary Mortgage Lenders Association (IMLA) uncovers widespread expectations that this second part of the scheme will be curtailed ahead of schedule.
IMLA’s latest Intermediary Lending Outlook report reveals a consensus that the second phase of Help to Buy has been the most critical factor in boosting access to 95% loan to value (LTV) mortgages to date.
Some 78% of brokers and 77% of lenders see this part of the government scheme as a major driver in improving conditions for borrowers with 5% deposits.
Significant numbers also credit Help to Buy with a key role in boosting the appeal of new build homes through its equity loan offering with 69% of lenders and 51% of brokers supporting this view.
Overall, brokers judge Help to Buy to have been more influential in restoring confidence among builders than consumers. Some 50% see it as a deciding factor in boosting the outlook for the construction industry, compared with 42% for consumers. In contrast, 45% cite a wider range of factors behind the return of consumer confidence.
The report also shows that over inflated house prices remain the number one threat to the success of Help to Buy according to brokers and lenders. IMLA’s recent report What is the new ‘normal’? demonstrates that mortgage lending volumes are far below historic levels in real terms, yet these new findings suggest the industry recognises the need to monitor house price growth over the duration of Help to Buy.
Unattractive mortgage product pricing is the concern which has grown the most since last summer, with 51% of brokers citing this as a threat compared with 36% in July 2013. A number of lenders have launched competitive mortgages at 95% outside Help to Buy, which helps to explain why an over-reliance on government support has become less of a worry overall.
Half of brokers and 49% of lenders predict that the mortgage guarantee scheme will be withdrawn early, despite its perceived impact so far. Even more, 54% and 75%, expect that the scheme will be withdrawn early for remortgages, which are currently allowed under the scheme for customers transferring their existing loan to a new lender.
Despite these predictions, all lenders 89% of brokers see 95% LTV mortgages as an essential part of a healthy mortgage market. Such loans were an established part of the UK mortgage market before the downturn and Help to Buy has helped to stimulate a recovery in the number of 95% LTV products available.
The Help to Buy equity loan scheme for new build homes is judged to have the biggest chance of being extended beyond its current end date of March 2016. Some 23% of lenders and 18% of brokers expect to see this part of the scheme prolonged.
‘These findings throw the spotlight on crucial policy decisions that must be thought through to safeguard the recovery in mortgage lending and house building. The overall Help to Buy scheme has delivered a much needed boost over the last twelve months and we would certainly be looking at a more subdued supply situation without it,’ said Peter Williams, executive director of the IMLA.
‘In particular, Help to Buy 2 has helped to reopen the higher LTV market after the downturn. This has done much to transform the hopes of first time buyers who can afford a mortgage but struggle to save an initial deposit. There are few clearer drivers for more homes to be built than aspiring buyers returning to the market,’ he pointed out.
‘The Help to Buy factor has been important in getting growth underway, restoring a sustainable market and moving us towards a position where consumers can access affordable loans without the need for government support. Whether or not the scheme runs its full course is less important than making sure we have a self sustaining market in place going forward. The evidence suggests that we have an entrenched mortgage market recovery which can survive its withdrawal,’ he explained.
‘However, situations change and the industry is facing a considerable uplift in regulatory controls over the next two years. It will be essential to track how those bed in and what their consequences are for specific market segments. Armed with that understanding we can then be much clearer as to how and when we might best phase out the government schemes,’ he added.
According to Simon Crone, vice president for mortgage insurance Europe for Genworth, the difficulties facing first time buyers have not been resolved by any stretch of the imagination. ‘Housing inflation is set to make that first step onto the housing ladder an even greater challenge for many. We need to ensure that responsible borrowers who would struggle to save 10% or 20% deposits are not forgotten when Help to Buy comes to an end especially if this happens sooner than expected,’ he said.
‘The IMLA research emphasises that 95% loan to value mortgages are a crucial part of the mortgage product range. Directly or indirectly, the government guarantee has worked wonders to improve consumer choice. Insurance gives more lenders the confidence to support buyers who are only able to save a smaller deposit, and a bigger role for private schemes would remove the risk to taxpayers and end the reliance on government,’ he pointed out.
‘The growing number of 95% mortgages launched in the last six months with ever more competitive rates has relied on a combination of insured and uninsured products. Even if Help to Buy 2 fulfils its term and runs until 2016, planning needs to begin now so that change doesn’t upset the balance and lenders don’t desert the market. Lenders and builders need the government to outline its thinking now and present a longer term, viable solution to support responsible borrowers with smaller deposits,’ he added.
