The Treasury and the Prudential Regulation Authority are understood to be looking at a range of structures to make it easier for lenders to get capital relief on Help to Buy mortgage guarantees than it was with the previous NewBuy guarantee scheme.
Chancellor George Osborne issued draft details to lenders last week of the Government’s Help to Buy mortgage guarantee scheme, which is set to launch next January. Lloyds Banking Group has already signed up.
However, two key elements of the scheme were not revealed: the cost of participation and how the capital relief would work.
A PRA spokeswoman told Mortgage Strategy that a key problem with NewBuy, which was a securitisation scheme, was that capital relief was “actually quite difficult to get on it”.
She said: “The issue of the securitisation scheme was that they couldn’t see where the capital relief would go.
“So what they are looking at in terms of the new scheme is if you were going to have capital relief, where would it actually come off, where would you actually put the capital relief, where would it actually sit? And that depends on where the Help to Buy scheme ends up being.”
The Building Societies Association’s head of mortgage policy Paul Broadhead says that a key problem with NewBuy, which was launched in March 2012, was that it was retrospective.
Lenders involved in NewBuy could only get capital relief if they used an internal ratings-based approach to the capital requirements for credit risk. Only banks meeting minimum conditions, disclosure requirements and with approval from their national supervisor are allowed to use this approach in estimating capital for various exposures.
Barclays was one of the lenders confirmed to have gained capital relief using this measure.
Broadhead says that if the Help to Buy mortgage guarantee is going to work, a form of capital relief has to be provided. He says: “If there is no capital relief, why would you join this scheme? It’s expensive, plus they’ve got to pay a fee – it has to come.
“The difficulty is we can’t have what we had with NewBuy, which was that it was retrospective.
“If it is a guarantee, a lender needs to know up front that it will attract capital relief and what they need to do in order to get that. So it needs to be absolutely clear before a lender signs up to it and puts a single loan in.”
Mortgage Strategy revealed the launch of the Help to Buy MIG scheme a month before it was announced in March’s Budget.