Govt brings forward Help to Buy launch date
The scheme, which aims to encourage mortgage lenders to offer higher loan-to-value mortgages at lower interest rates, was due to start in January 2014, but David Cameron has announced that qualifying loans offered by participating lenders from this week on will benefit from the Government indemnity.
The Help to Buy indemnity, or insurance, will compensate mortgage lenders should borrowers of these higher loan-to-value mortgages default on their loans.
The hope is that this insurance will boost the availability of mortgages between 80% and 95% loan-to-value, making it easier for borrowers with small deposits to get on or move up the housing ladder.
The indemnity will apply for seven years after the loans are issued, the hope being that after that time mortgage borrowers will have paid off a chunk of their debt and pose less risk to lenders.
Help to Buy 2 will be available on mortgages up to £600,000 and will not be confined to fitrst-time buyers, but will only be offered on a borrower’s main residence, rather than buy-to-let or second homes.
Lloyds Banking Group (which includes the UK’s biggest lender, Halifax) and RBS/NatWest are the only two mortgage lenders which have so far confirmed that they will use the scheme.
The Prime Minister has been forced to defend the scheme after critics, including business secretary Vince Cable, warned it could spark a fresh housing bubble. Speaking on the BBC’s Andrew Marr Show, David Cameron said:
“The Bank of England said expressly there isn’t a bubble. The housing market is recovering, but from a low base. “As Prime Minister, I’m not going to stand back while people’s aspirations to get on the housing ladder, to own their own flat, to own their own home, are being trashed.”
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), said:
“Consumers have grown accustomed to a limited supply of 95% mortgages ever since the recession, so the news of a bumper delivery ahead of schedule will rightly cause a wave of excitement. The Help to Buy mortgage guarantee has a clear purpose and will answer a real need by giving options to first-time buyers and those homeowners who have seen their equity eroded and been unable to make their next move. It is undoubtedly a welcome initiative from a consumer point of view.
“A key ambition over the next three years must be to re-establish 95% lending as part of a balanced and normally functioning market. With the government behind it, the market looks set for continued growth which will hopefully prompt a greater level of overall transactions and more willingness from lenders to get behind those buyers with limited deposits.
“Clearly there will be a flurry of activity as lenders bring their implementation and delivery plans forwards, once the final details of the scheme are confirmed. The important thing is for consumers to get clear, consistent messages about the mortgage guarantees, how they work and where they are available. Rather than becoming an overnight sensation, it would be in everyone’s best interests if the scheme is managed in a steady and sustainable way.”