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A waiting game on Help to Buy 2


Lenders want more details on the second instalment of the Government’s Help to Buy scheme before making firm commitments to join despite draft proposals released last week.

Chancellor George Osborne hosted a Downing Street summit for house builders and lenders to update them on the details of Help to Buy.

In the March Budget, Osborne said he would extend existing Government schemes designed to boost the housing market.

The first part was a shared equity scheme which allows borrowers to access a 75 per cent loan to value mortgage with a 20 per cent Government loan and 5 per cent deposit.

The scheme, which launched in April, is only available on new-build properties worth up to £600,000 and has started like a freight train with 7,000 reservations in four months, 1,000 confirmed sales and major lenders joining every month.

The second Help to Buy instalment is the mortgage indemnity scheme which is set to launch in January 2014 and run for three years. The Government will offer a guarantee of up to 15 per cent of the purchase price while borrowers will put down a deposit of between 5 and 15 per cent.

Lenders’ losses are capped at 5 per cent before the Government guarantee kicks in. The Government is offering £12bn-worth of guarantees to lenders to fund £130bn of lending.

Osborne says lenders will be charged a commercial fee for the insurance service and could receive other benefits like capital relief.

Last week’s summit was arranged to outline further details of Help to Buy and Osborne fended off criticism about the scheme being used for second homes, “sub-prime” borrowers or foreign buyers.

He formally barred buy-to-let lending, people buying second homes, foreign buyers without a UK credit history and those with impaired credit, as defined by the Financial Conduct Authority.

Borrowers will also be subject to income verification and stress testing, as set out in the mortgage market review rules.

Osborne said: “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 housebuilding.

“Lenders have the detail they need to go away and get ready for next January’s launch.”

Lloyds Banking Group responded immediately by welcoming the scheme and promising to outline its offering later this year.

Nationwide and Barclays are waiting for more details before deciding to join while Santander and the Royal Bank of Scotland were unavailable to comment.

The Council of Mortgage Lenders says the meeting was a progress report and called for further Government action to make Help to Buy simple to administer, have a clear exit strategy and be accompanied by a focus on house building.

Lenders want more information on whether they will receive capital relief, administration costs and the cost of the commercial fee.

Building Societies Association head of mortgage policy Paul Broadhead attended the meeting and says additional information was helpful.

But he adds: “It is disappointing we still don’t know what the commercial fee might be. To leave the fee until all the detail is worked out is too late so I would welcome a ballpark figure of what the fee might be to give lenders something to work with.

“Before making any firm commitment lenders need to know the administrative burden, how much it is going to cost and whether there is capital relief. These are the three things that absolutely have to be discussed.”

John Charcol senior technical manager Ray Boulger says: “Without information on capital relief and the commercial fee the meeting was largely a waste of time. Restrictions on second homes and impaired credit would have likely applied so it’s all about spin and nothing which will actually restrict availability.”

Capital requirements for high loan-to-value mortgages are seen as particularly onerous and any relief is viewed as a crucial incentive.

Negotiations between the Prudential Regulation Authority and the Treasury are ongoing, with business secretary Vince Cable’s criticisms of a Bank of England “capital Taliban” ringing in their ears.

Another concern is the Government insistence on applying the MMR rules to Help to Buy. It means lenders which want to join would need to be MMR-compliant by 1 January rather than 1 April.

Boulger says: “Even if lenders want to participate, they may struggle to do so by 1 January. Giving lenders five months’ notice to get their systems compliant is not good. I suspect the number of lenders willing to participate in January will be pretty small.”

As well as concerns about the details of the scheme, there has been a tidal wave of criticism from economists on whether it will simply push up house prices without boosting supply.

Speaking to Money Marketing, former monetary policy committee member David Blanchflower says: “It’s cheap politics from an incompetent chancellor. 

“It will push up house prices which politically might be a good idea but economically is mad. There is not a single economist who thinks it is a sensible idea. It will end in tears and another bubble.”

The Institute of Directors launched a stinging attack on the Government’s plans claiming they are “very dangerous” and show “the world’s gone mad”.


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