Crucial details still missing from 'mad' Help to Buy scheme

Crucial details still missing from 'mad' Help to Buy scheme

With five months to go, crucial detail is still missing from the next stage of the Help to Buy scheme, despite a Downing Street meeting yesterday to discuss progress.

There was also fresh criticism of the scheme.

There was also fresh criticism of the scheme. Yesterday, the Institute of Directors labelled it “mad”, with chief economist Graeme Leach saying: “The housing market needs help to supply, not help to buy.”

The Homeowners Alliance said the scheme would be “papering over the cracks” in the UK’s housing crisis and said the real problem was a shortage of homes.

CEO Paula Higgins said it was also vital that the scheme was short-lived. She said: “If Help to Buy goes on and on, the housing market could come to rely on government guarantees – which is the situation the US is desperately trying to escape from at the moment.”

The scheme – labelled as “moronic” by one critic – is set to launch on January 1, offering first-time buyers and other purchasers of both new and secondhand stock worth up to £600,000 access to 95% mortgages.

Taxpayers will be providing a mortgage guarantee, to reduce lenders’ risks and encourage them to join the scheme.

At yesterday’s meeting, convened by chancellor George Osborne and attended by a number of mortgage lenders, house builders and others in the market, key questions were left unanswered – including capital relief for lenders, how much it will cost them to participate in the scheme, their reporting requirements and the exit plan after the scheme’s planned three-year shelf life.

Osborne, however, denied that the scheme was still short on detail, saying: “I’m determined to back people who want to do their best for their families. Help to Buy is about getting behind those who aspire to own a home.

“The mortgage guarantee will support an increase in high loan-to-value mortgages for people who can’t afford large deposits, and it will also boost house building.

“As of today, lenders have the detail they need to go away and get ready for next January’s launch.”

Details supplied to lenders include the need for responsible lending, with borrowers unable to access the mortgages if their credit history does not meet certain standards, including having a County Court Judgement over £500 in the last three years.

The many critics of the Help to Buy mortgage indemnity scheme fear that it will spark a house price bubble, but Ben Thompson, managing director of Legal & General Mortgage Club, said its impact would be for the good.

He said: “The positive impact of the Government’s Funding for Lending scheme on mortgage pricing, combined with a recent lift in consumer optimism, has helped the mortgage and housing markets to bounce back nicely in 2013.

“The two Help to Buy schemes have also been announced, the first of which has already captured significant interest from home buyers.

“Some would therefore question the rationale of providing yet more stimulus to this market, especially as house prices are starting to recover well. This recovery is however patchy, with some regions remaining very flat, therefore it could easily be argued that this latest guarantee scheme is very much needed.

“Lenders will of course have to find a way to participate that makes commercial sense, as well as not taking on unnecessary high risk: it will be interesting to see how this picture unfolds. However, this scheme will have a further positive impact on the mortgage and housing markets.”

The Council of Mortgage Lenders called on the Government to confirm the remaining details as soon as possible, particularly the commercial fee for participation and how capital relief will work, to enable lenders to make an informed choice about their participation.
The CML said that, to be successful, the Help to Buy mortgage guarantee scheme needs to be straightforward for lenders to implement and administer; have a clear exit strategy; and be accompanied by an equivalent focus on new house building.
It says that this last point is crucial to “avoid the unwelcome effects that stimulating demand without also increasing supply would create”.
CML director general Paul Smee commented: “The mortgage market is open for business, and it is clear that government support has helped to create more favourable market conditions for home buyers.

“Lenders, whether they choose to participate in the guarantee scheme or stay outside, will continue to do their utmost to meet households’ needs for mortgages, but always in a way that is responsible.”

Brian Murphy, head of lending at the Mortgage Advice Bureau, also urged the Government to fill in the missing details.

He said: “For the scheme to meet its full potential, we need plenty of lenders to put their weight behind it so that product pricing is competitive and we don’t become over-reliant on one or two big high street names. That is why it is so important that the Treasury acts quickly to finalise the scheme so that all lenders are encouraged to participate.”

Angel Mas, president of mortgage insurance, Europe at Genworth, said: “It is very disappointing that the Government has persevered in reinventing, on the taxpayers’ account, a private industry that already exists.”

House builders at yesterday’s meeting welcomed the second stage of Help to Buy. The first stage of the scheme – shared equity mortgages allowing buyers access to 95% loans – has boosted house building to the extent that Barratt are building 20% more homes than two years ago, purely due to the scheme, which launched in April.