Question marks continue to be asked over the Budget initiatives for the housing market, with the launch next January of what have been described as ‘Fannie Mae-style’ government backed mortgages.
From next January, taxpayers’ money will be put behind efforts to encourage lenders to offer better access to low deposit mortgages on both secondhand and new homes worth up to £600,000.
While estate agents are predicting a long-awaited uplift in sales, there is concern over the nine-month wait until the scheme kicks in.
The fear is that both buyers and sellers will put their plans on hold for the rest of this year – buyers because they know there will be 95% mortgages readily available, and sellers because they are banking on high demand in 2014 bumping up prices.
Estate agents report being inundated with inquiries about the scheme in the last few days. Because of the high price threshold, even upmarket agents in central London report strong levels of interest.
While the Help to Buy scheme does exclude buy-to-let landlords, so far there is no mention of a salary cap – meaning that high earners could use it – or restrictions banning buyers of second homes.
Ed Mead, director of Douglas & Gordon, said it appeared that the Help to Buy scheme might not necessarily help “those most in need”.
He said: “Given the limit at £600,000 and lack of salary cap, surely this is going to appeal to those wanting really quite nice property – for example, three-bedroom flats and houses in Battersea and Wandsworth. If I was being cynical, I’d call those Tory voters.”
Haus Properties, another London agent, reported “a huge amount of interest” in the scheme when it held a property seminar last week.
Think tank Social Market Foundation, a cross-party organisation, said that younger home buyers in particular risk being caught out badly in the Help to Buy scheme.
Ian Mulheirn, director, said: “That mortgage lenders have cut the availability of low loan-to-value mortgages is a sign that they think the risk of a significant house price fall is too large to want to risk their money. So now the Government is stepping forward to risk our tax money instead, and perpetuate the socially damaging disequilibrium in the housing market.
“Overall, the scheme will entice young people to load themselves up with debt to finance over-priced houses, keeping the housing bubble inflated with taxpayer guarantees.
“And if it all goes wrong and house prices fall, the young will pay twice: once for their overpriced house, and once through their taxes to pay for the losses on this unwise gamble.”
Meanwhile, veteran mortgage industry figure Ray Boulger, of John Charcol, queried why taxpayer money was being risked at all when private insurance exists.
Boulger also said that the reason why high loan to value (HLTV) mortgages are currently so scarce is because lenders are required to hold so much more capital for such loans.
Speaking on Radio 5’s Wake Up To Money programme, Boulger said: “The huge irony in this scheme, the reason HLTV mortgages are not readily available (when they are, they are at a relatively high rate) is due to Basel III rules requiring lenders to hold much more capital for HLTV loans.
“For a 95% LTV mortgage, lenders have to set aside about eight times as much capital as they do with low LTV mortgages. Lenders obviously have to price for the higher risk on these high LTV mortgages, but the biggest problem is the amount of capital they are required to hold – lenders could do eight times as much lending at 60% LTV than they could at 95% LTV.
“Unless the Government, via the regulator, could give lenders capital relief, i.e. treat a 95% LTV mortgage as an 80% LTV mortgage, the scheme will not actually free up any additional lending capacity.”
He went on: “A further irony is that … there is a lot of capacity in the private insurance market. There are six or seven big reinsurers in this market, and several insurance companies and Lloyds companies, who actually do have the capacity to offer this £130bn of cover. What I find strange is why the Government is intervening now when the market has capacity to do it.”
Asked if the Government is actually in competition with reinsurers, Boulger replied: “Effectively, yes. Some building societies already buy mortgage insurance… Clearly the Government’s credit is better than anybody else’s, but it does seem strange to me that the Government is intervening when the market is performing the function.”
For those who have not yet taken a look, the Treasury’s infographic on Help to Buy is extremely useful and answers a lot of basic questions:
www.hm-treasury.gov.uk/d/budget2013_help_to_buy_infographic.pdf
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