Conditions for first-time buyers continue to improve, but is the Government’s Help to Buy scheme going to provide the boost this sector desperately needs or would a stamp duty holiday have been more effective?
Figures from the Council of Mortgage Lenders last week show the number of first-time buyers increased by 20 per cent in March, rising to a total of 19,100 loans worth £4.2bn from the 15,900 loans approved in February.
Brokers are, understandably, positive on the implications of this latest surge in lending figures and have pointed to the recent extension of the Government’s £60bn Funding for Lending scheme as inspiring some much-needed confidence in lenders and borrowers alike.
Mortgage Advice Bureau head of lending Brian Murphy says: “Competition under the Funding for Lending scheme has prompted lenders to improve their offers higher up the LTV curve, opening up the market to borrowers without a large deposit and making it easier to achieve their homeowning ambitions.”
The Bank of England recently extended the Funding for Lending scheme by a year, to run until 2015. The Government’s Help to Buy scheme, the shared equity element of which was introduced in April, will run alongside the scheme.
Under Help to Buy, borrowers must have a 5 per cent deposit to secure a 20 per cent Government loan. The loan is interest-free for five years, after which a fee of 1.75 per cent is payable, rising annually by RPI inflation plus 1 per cent.
The loan is repayable on the sale of the property. To qualify for the scheme homes must be worth less than £600,000.
The scheme replaces FirstBuy, which was only available to first-time buyers.
While the latest CML figures show monthly increases in lending to FTBs, they also show a 21.7 per cent decline on the 24,400 loans advanced in March last year when the end of the stamp duty holiday resulted in a jump of activity.
The stamp duty holiday exempted first-time buyers from the 1 per cent tax on properties worth less than £250,000 until the end of March 2012.
These latest figures represent the first opportunity to compare the full impact both initiatives, designed the drive greater lending volumes, can have on first-time buyers.
The CML has stressed the spike in activity due to the end of stamp duty holiday was a one-off. What is revealing about it is it highlights the extra lending capacity the incentive was capable of generating.
When the March 2012 lending figures are taken into account for the quarter, 51,200 loans were advanced in the first three months of 2012 compared with the 50,900 loans advanced to first-time buyers in the first quarter of this year.
The stamp duty holiday had the potential for a greater capacity for lending which was achieved even prior to the introduction of Funding for Lending. This is particularly relevant given that rates for first-time buyers were higher then.
Figures from Moneyfacts shows the average two-year fixed rate at 90 per cent LTV was 5.36 per cent in March 2012 and was 4.61 per cent in March 2013. The rate on an equivalent 95 per cent LTV product fell from 5.64 per cent to 5.34 per cent.
Does this mean this greater capacity lies outside of the Help to Buy scheme’s potential and has the Government neglected a proven means of stimulating lending in favour of the untested Help to Buy? A measure the Treasury Select Committee’s Andrew Tyrie has described as “very much work in progress” that “may have a number of unintended consequences”.
IMLA executive director Peter Williams says a sustainable growth pattern has yet to become visible but first-time buyers are managing without a stamp duty holiday.
He says: “To an extent it is no more than we would expect at this time of year, but the quarterly fall in house purchase volumes suggests that consistent growth is yet to emerge. However the figures indicate that first-time buyers can still find their way to a favourable deal without the added incentive of the stamp duty holiday.”
But Chadney Bulgin mortgage partner Jonathan Clark says: “One of the main benefits of the stamp duty holiday was the ability for the borrower to purchase any mortgageable property, whereas the Help to Buy and First Buy schemes are currently restricted to new-build properties which do not match everyone’s needs or tastes. However, the Government seems committed to the new-build market at the moment as it should help to stimulate the general economy, so I don’t expect to see another stamp duty holiday in the near future.”
Your Mortgage Decision director Dominik Lipnicki says, given the current economic climate, greater steps should be taken to ensure an upturn in lending, including a further stamp duty holiday.
He says: “Stamp duty holidays are very area-specific. In areas where the property market is more stagnant, it is a great idea. When the holiday was running, it did achieve a kick start. The more that can be done the better since there is no one single silver bullet.”