The Help to Buy scheme, announced by Chancellor George Osborne in today’s Budget 2013, will run for three years in a bid to boost the country’s struggling residential real estate market and start in January 2014.
‘Help to Buy is a dramatic intervention to get our housing market moving. For newly built housing, government will put up a fifth of the cost. And for anyone who can afford a mortgage but can't afford a big deposit, our mortgage guarantee will help you buy your own home,’ said Osborne.
He announced that the government is committing £3.5 billion to shared equity loans for new build homes worth less than £600,000 allowing buyers to purchase them with a 5% deposit. The government will offer a loan worth up to 20% of the property which will be interest free for the first five years. While previous help was only available to first time buyers with incomes below £60,000, the new scheme is open to all.
The initiative is an extension to existing government programme New Buy, whereby buyers could purchase homes worth less than £500,000 with a 5% deposit and a shared equity scheme for first time buyers called First Buy.
The Council of Mortgage Lenders immediately confirmed that it will work constructively with the government to help deliver a workable scheme, but emphasises that the detail of its operation will be crucial to its success.
‘Clearly, to be successful the voluntary scheme will need to be robust, not overly complex, result in the delivery of products that are attractive to borrowers, and be commercially viable for lenders. To achieve this, the scheme will need to ensure that all lenders will be able to gain capital relief in recognition of the risk mitigation offered by the Government guarantee. Without capital relief, and depending on the size of the fee, the cost of the commercial fee that lenders will have to pay to gain the benefit of the scheme could make the scheme uneconomical,’ said the CML.
‘Because it will take some months to design and put the scheme in place, the benefits will not be immediate. However, a successful scheme could ultimately enable lenders to offer more low deposit loans than they would otherwise be able to do without incurring concerns from funding markets, prudential regulators, or their own internal risk committees,’ it explained.
‘In the meantime, the CML urges the government and the building industry to continue to support NewBuy, as well as the increased focus on the reinvigorated equity loan scheme that replaces FirstBuy,’ it added.
The CML has commissioned consumer research to explore current attitudes to low deposit mortgages, and mortgage market issues more generally. The findings will be available in the next few weeks and will be used to calibrate the likely consumer appetite for the proposals.
Brian Murphy, head of lending at the Mortgage Advice Bureau (MAB), said that the new scheme should provide the extra boost that’s needed to accelerate lending for house purchases up the loan to value (LTV) scale and will relieve a real headache for anyone struggling to fund a deposit for a home as well as helping to boost confidence in the market at a time when house prices are beginning to rise.
'The January 2014 start date cannot come soon enough, because, while we have seen remortgage LTVs increase by more than 5% on average under the Funding for Lending Scheme (FLS), any change for purchase mortgages has been disappointingly slow. In fact, the average purchase LTV has risen by less than 1% since FLS was launched,' he explained.
'With £130 billion worth of mortgages promised, a sustained increase in lending volumes is on the horizon but in the meantime, there is plenty of scope to improve the targeting of FLS and encourage higher risk lending,' he added.
Andy Frankish, new homes director at MAB, said the announcement on a new equity scheme loan was a surprise but very welcome. 'It will allow developers to receive 100% of their capital on sale, so they can invest in more land and build projects in order to create the momentum that is critical to the wider housing market recovery,' he pointed out.
'Opening up the scheme to existing home owners as well as first time buyers is brilliant news for those struggling to move up the property ladder. We can expect to see new build transactions continue to increase from 1st April and contribute to a more buoyant housing market. But with construction output having stalled, the next challenge will be to ensure that enough properties are built to meet demand,' he added.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association, described the announcement as welcome news for both lenders and borrowers but pointed out that improving mortgage access is only part of the process of boosting the property market and construction industry.
'Both schemes run for three years and experience tells us it takes time to get programmes up and running. However, because both build on existing schemes, we might hope there will be a quicker impact bringing new momentum to the market for both first time buyers and existing owners. The use of a guarantee is a sensible way of making good use of limited government resources and this should bring new activity to market. One concern would be the stimulus does more for house prices than housing supply,' he said.
The Chancellor said this Budget was good news for home builders but improving mortgage access is only part of the equation. In the absence of a further commitment to increase home building, will we see house prices artificially inflated from a continuing lack of supply? Questions must still be answered on new build plans before we can accurately predict the shape of the future housing market with any confidence,' he added.
