The mortgage market is back. Council for Mortgage Lenders’ figures show lending rocketed by 21 per cent in April delivering the best month since October 2008.
The funding for lending scheme has boosted lending and slashed rates while the shared equity part of the Help to Buy scheme is flying off the shelves.
Halifax says house prices are rising at their fastest rate in three years with a 3.7 per cent annual increase in June.
The latest Bank of England credit conditions report shows the availability of high loan to value mortgages has increased and is set to improve throughout the year. It also highlighted significant increases in demand.
CML statistics show the number of first-time buyers was also 11 per cent higher in the first four months of the year, compared to last year. Help to Buy is chiefly designed to help young people get on to the housing ladder with low deposits but they are now doing it in greater numbers without help.
Brokers are also reporting such huge increases in mortgage volumes that networks have started to raise concerns they may start to churn clients again.
New Bank of England governor Mark Carney has also signalled this week that interest rates are set to remain at record lows for some time to come, to the delight of financial markets.
Overall the mortgage market is looking rosy, although there are still some regions which are not benefiting from a bounce.
It begs the question why is the Government planning its biggest ever intervention in the sector next January with its mortgage indemnity guarantee?
Under the MIG scheme, set to launch in 2014 and run for three years, the Government will offer a guarantee of up to 15 per cent of the purchase price with the borrower putting down a deposit of between 5 and 15 per cent.
The Government is offering £12bn-worth of guarantees to lenders to fund £130bn of lending. If homes are repossessed and lenders lose more than the borrower’s deposit, they can access Government guarantees.
It’s a big risk and Chancellor George Osborne says the only reason he is taking such drastic intervention is to address clear “market failure”.
He promises it will be withdrawn in three years with the financial policy committee given a “lock” to prevent its extension if it threatens stability.
The warnings that the MIG scheme could create a housing bubble have been loud and widespread from ex-Bank of England governor Lord Mervyn King to the Treasury select committee and International Monetary Fund.
Criticisms of a bubble were made in the context of a broken market so what impact will it have if the mortgage market is performing well in 2014?
There are also practical problems with how to create a successful scheme with the Government struggling to stop it being abused for second homes.
Lenders are also crying out for capital relief but negotiations will be difficult with banks and building societies operating different reporting systems.
There are also concerns the Government could destroy the burgeoning private mortgage indemnity insurance market by undercutting it.
John Charcol senior technical manager Ray Boulger believes the MIG scheme should be “canned” due to the change in market conditions.
He says: “In 2009 and 2010 it could have been justified but the Government did not have the confidence. There are more and more reasons not to go ahead with it and in six months there will be even more. The Chancellor has so much political capital invested in it he won’t drop it. The more I think about it the more it feel’s like a dog’s breakfast.”
Is there really a market failure sufficient for such drastic intervention? Is it possible the Government could pull the plug on this part of Help to Buy before it even starts?