To say the Help to Buy scheme has had a mixed welcome is a bit of an understatement. It has been described by some as the shot in the arm the market requires but feared by others as the unwelcome starting point of a UK housing bubble.
Under the plan, the Treasury has committed £3.5bn of shared equity loans to house buyers, and billions more under a new mortgage guarantee, to help thousands of would-be buyers who are currently priced out of the market.
The scheme moves the risk of as much as £130bn worth of new lending from mortgage lenders to the taxpayer.
Despite only launching in April, there is already evidence to suggest that the scheme is making a positive impact. According to a recent survey by the RICS, new buyer enquiries have raised to their highest level since November 2009 as a result of the scheme launching in April. The survey reported its first overall rise in prices since June 2010.
However, the long-term fear from some economists, including fiscal watchdog The Office for Budget Responsibility, is that the scheme will increase sales without alleviating supply shortages, resulting in a rise in house prices, and creating the bubble I mention above.
It’s therefore really critical that developers are true to their word and accelerate the delivery of new stock to satisfy this rise in demand, particularly with the “mortgage guarantee” element of the scheme kicking off in 2014.
Barratt, the largest house builder by market capital, has already reported taking 400 reservations under the scheme and receiving 9,000 expressions of interest, which is a barometer for how much interest this scheme could create.
Under the scheme, a buyer with a 5 per cent deposit is able to borrow an extra 20 per cent of the sale price of their new home. In theory, this 25 per cent deposit should enable them to access better deals as it minimises the lender’s exposure to credit risk.
The success of the scheme will depend on whether these loans are genuinely cheaper than those more generally available in the market, and whether sufficient numbers of lenders participate and force product competitiveness.
Lenders currently face a fee to have their mortgages guaranteed by the Government, so are likely to reflect this in the total cost of the loan. In addition, they are also expected to provide extra capital for Help to Buy cases.
Many lenders may decide not to take part and the risk is that this would result in a lack of price pressure and inadequate choice for the consumer.
As alert brokers will know, Halifax and Woolwich are on board, joined recently by Natwest, which has launched a two-year fixed rate at 3.15 per cent and a five-year fixed rate at 3.59 per cent, both without product fees.
We expect more to follow suit, particularly in the second phase of Help to Buy in 2014.
As intermediaries, we must stay on top of our game, watching lender product development for Help to Buy closely to ensure that we offer sound advice for those looking to take advantage of this significant opportunity.
Rob Clifford is chief executive at If I Were You