Brokers have hit out at Lloyds Banking Group’s decision to slash the maximum loan size available through Help to Buy 1.
Last week, Money Marketing sister title Mortgage Strategy revealed Lloyds had reduced its maximum loan for all shared equity and shared ownership products – which inc-ludes the Help to Buy equity loan – from £500,000 to £150,000. The lender said the change “reflects the fact that we currently hold around a 50 per cent share of this market and is a further step to focus our activity on supporting first-time buyers who have limited options to get onto the housing ladder”.
Chadney Bulgin mortgage partner Jonathan Clark says: “I am staggered by the reduction, it’s crazy. I don’t think people are surprised at the move because there has been pressure on policymakers to reduce the maximum loan for Help to Buy, but no one will have been expecting a cut of this size. It’s a real shocker.”
Start Financial Services manager Tom Cleary says it is an unintended consequence of the Bank of England’s new regulations capping loan to income ratios.
Cleary says: “This is absolutely an unintended consequence of a badly thought-out policy. All the focus was on affordability in the build-up to the MMR and now three months later we’re back to this blunt instrument of income multiples. This leaves lenders confused and tightening criteria to make sure they are covered.”
Nationwide, Barclays, Santander and Royal Bank of Scotland all say they have no plans to reduce the maximum loan size available on shared equity or shared ownership products. HSBC does not offer products through Help to Buy 1.
But brokers remain unconvinced, saying the Help to Buy 1 market is likely to tighten over the medium to longer term.
Perception Finance managing director David Sheppard says: “Just because the other lenders are saying they won’t follow suit now does not mean they won’t be assessing the market later down the line.”
Under the Help to Buy equity loan scheme borrowers can buy a new-build property worth up to £600,000 with a 5 per cent deposit and a 75 per cent mortgage, with a Government equity loan of up to 20 per cent.
Government figures published last week reveal June was the biggest month for Help to Buy 1 since the scheme launched in April 2013, with 4,357 deals completed.
Key Figures: Help to Buy equity loan scheme
Total number of completions – 27,167 (as of 30 June 2014)
Highest monthly volume of completions – 4,357 (June 2014)
Average purchase price – £207,967
Proportion of sales to FTBs – 85%
Top 3 Local Authorities (Completions) – Wiltshire (469), Leeds (457), Central Bedfordshire (427)