Help to Buy wrong for allowing remortgaging, claims Ed Balls

Help to Buy wrong for allowing remortgaging, claims Ed Balls

Shadow Chancellor Ed Balls has claimed that Help to Buy will help people who have no intention of moving but can use the scheme to remortgage to 95% at the taxpayers’ risk.

Balls, speaking at the NHBC annual lunch in Westminster, said: “The first phase of Help to Buy has helped, but the second phase has been widely criticised.

“I think commentators are right to question why a policy intended to help first-time buyers will also help existing home owners buy properties up to £600,000, and also allow people who are not moving at all to remortgage.”

He called for an immediate review, adding a further criticism – that a fundamental flaw of Help to Buy is that it stimulates demand but not supply.

The second phase of Help to Buy allows buyers access to 95% mortgages which are backed by a government indemnity that protects lenders from losses.

Balls – who said Labour broadly supported Help to Buy – repeated his claims in a short question and answer session, saying: “I don’t really understand the £600,000 limit. I do understand the role of the home mover [in freeing up homes for first-time buyers], but I don’t understand the role of the taxpayer guarantee in allowing remortgaging.”

We put his claims for factual checking to the Department for Communities and Local Government whose press office declined to comment on what they said was a political matter, but passed our query to a political adviser.

We were then told that Help to Buy lenders are currently only offering loans for house purchase, not for remortgage purposes.

However, Brian Murphy of the Mortgage Advice Bureau gave a more detailed answer. He said that technically Balls is right – but that in practice, no Help to Buy lender is currently offering a remortgage product.

Murphy told EAT: “Ed Balls is correct as far as that in theory you can use Help to Buy mortgage guarantees to remortgage, but only in some circumstances.
“The Government’s original scheme outline highlighted the issue of home owners with low equity struggling to remortgage on to more competitive offers due to limited high LTV lending.

“For that reason it left the scheme open for borrowers remortgaging with a new lending institution.

“However, to keep the benefits focused on borrowers and not lenders, it stipulated that lenders can’t use the guarantee to offer remortgage deals to their existing customers.
“In practice however, we understand that currently neither Halifax nor NatWest/RBS allow remortgaging within their product rules and HSBC’s new scheme (which goes live today) is not expected to either.

“Lenders participating to date have so far chosen to exclude the option for remortgaging from their products, at least for the time being.”

According to conveyancing firm LMS, remortgaging now accounts for 27% of the total market. On average, remortgagers are taking out an extra £21,579 above the value of their original loan.

* Also speaking at the NHBC lunch was the BBC’s Robert Peston who said that the first phase of Help to Buy could be “tainted” by the second phase. He thought it possible that next spring the Bank of England might bring down the £600,000 cap, but he did not think the scheme would be scrapped.

Meanwhile, latest figures show there have been 18,050 reservations made through the first phase of Help to Buy, plus 2,000 mortgage offers made under the second phase.

The first phase was launched in April and is a shared equity scheme available on new-builds only.

In the first six months of the scheme, 5,375 sales were completed with an average price of £197,167. There were just 26 sales to buyers of properties priced between £500,000 and £600,000 – the price at which the scheme is capped.

More than nine out of ten (92%) of sales were to first-time buyers with 71% of sales to buyers with the minimum 5% deposit.

Over 900 house builders are registered with the scheme, 94% of which are small and medium house builders.

The highest number of Help to Buy sales were in Leeds, Wiltshire, Milton Keynes and Reading.

Meanwhile, in the first month, 2,000 purchasers received offers through the second phase of Help to Buy, which offers a 95% mortgage backed by a guarantee.