Help to Buy scheme brought forward: latest

The second phase of Help to Buy is to be launched next week after David Cameron unexpectedly announced bringing it forward by three months.

One lender, RBS, said it expects to be so inundated with applications that it will extend its opening hours.

However, agents and their buyers and sellers should be aware it will be a phased introduction.

Lenders will be able to begin writing loans from next Monday but the taxpayer-backed guarantee underpinning the mortgages will not be available until January, as previously planned.

It means that while buyers with only a 5% deposit will be able to apply for mortgages, they will not actually get the loans through until January 1 onwards, and so will not be able to complete purchases until then. Miles Shipside, at Rightmove, said he thought that exhanges would be possible before the New Year, with mortgage offers in place, but not completions.

From next week, October 7, borrowers can apply for 95% mortgages to purchase both new and secondhand stock up to £600,000, with taxpayers underwriting up to 15% of the risk for lenders.

Crucial details such as rates on the mortgages are not yet known. Nor is it yet known how much lenders will have to pay for the guarantee.

Lenders have also voiced concerns about capital requirements, which are still also unknown. Currently, lenders have to hold certain amounts of capital and the higher the loans-to-value are on the mortgages they lend, the more capital they have to hold. For example, on loans at 90% loan-to-value, they need to hold around six times more capital than they do for loans at 60%.

Further details of this second stage of Help to Buy, set to help some 200,000 purchasers and far bigger than the first phase launched in April and which is a shared equity scheme on new-build purchases, are due to be announced this week.

According to the prime minister at the weekend, mortgage lenders signed up to the scheme – due to last for three years – include Halifax, RBS and NatWest.

It is not known why the scheme has been brought forward, but Cameron may have listened to concerns that no one could really know what effect such a major intervention in the market will have. By opening the scheme early for mortgage applications, the idea may well be that ministers, lenders, estate agents and developers will get a handle on the strength of demand and whether supply can match it.

Officially, Cameron is simply saying that the second phase of the scheme – which has been criticised by many including business secretary Vince Cable – is needed sooner, not later.

In various interviews at the weekend, he said the market was “recovering from a very low base” and first-time buyers needed help.

He said: “As prime minister I am not going to stand by while people’s aspirations to get on the housing ladder are being trashed.”

Cameron added: “Young people who’ve got a decent job and have got decent earnings – they cannot buy a house or a flat, because they have to have a £30,000, £40,000 or £50,000 deposit.

“Now, if you haven’t got rich parents, you can’t get that sort of money. So we’re going to launch the Help To Buy scheme – it’s not coming in next year, it’s coming in next week, because I’m passionate about helping people who want to own their own flat or home.”

Cameron’s announcement caught many in the mortgage industry on the back foot.

Angel Mas, president of mortgage insurance group Genworth, said: “It is very surprising that the scheme is being launched without clarity on key points, such as the fee and the way in which capital relief will work.”
 
Andrew Montlake of mortgage broker Coreco said the announcement was “extraordinary” given that there had been concern whether lenders would be ready for the scheme in January, let alone October.