The government has defied critics of its Help to Buy initiative by announcing it will begin accepting applications this week for the loan guarantees that form the second phase of the scheme, three months earler than planned.
Help to Buy scheme was announced by chancellor George Osborne in his Budget 2013 and was to be rolled out in two phases in April 2013 and January 2014 respectively.
The first phase of the scheme comprised of equity loans to help people get on to the property ladder as loan-to-values on available mortgages remain stubbornly low. The government will provide a 15 per cent loan for new build purchases of up to £600,000 for those able to stump up an initial 5 per cent.
Due to start in January next year, the guarantees will be available to lenders for loans to purchase any property worth up to £600,000 and will cover up to 20 per cent of losses in the event of default, minus the homebuyers deposit and a 5 per cent contribution from the lender itself.
The government set aside £12bn worth of funding and aims to facilitate £120bn of loans to both first-time buyers and existing owners.
Last week the Financial Policy Committee revealed it has been handed powers to assess the scheme’s impact each year and curtail it if it prompts an housing boom, amid concerns over the sustainability of the scheme’s effects.
The regulator will be able to reign in the scheme by advising whether the price cap and fees charged to lenders are appropriate.
Although hailed generally as a positive move for first-time buyers and house movers, some commentators criticised the announcement of an acceleration of the scheme as overly vague.
Ben Thompson, managing director of Legal and General Mortgage Club, said: “There will of course be some surprise and even some scepticism with regard to this announcement and implementation being accelerated.
“Right now it remains unclear exactly what the scheme details and specifics are for lenders, and in that regard precisely who will participate other than RBS and Lloyds Banking Group.”
Angel Mas, president of Mortgage Insurance Europe at 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.
“Capital relief is not clear, the pricing is not clear and it is still unclear how lending will be monitored to avoid an erosion of underwriting standards, as happened in the last crisis with this kind of lending.
“We have also seen nothing in the announcement to indicate how the government will extricate themselves now they are committing the taxpayer to take on high loan-to-value mortgage debt. Clarity on this point is urgently required. There is a clear role for the private mortgage insurance industry to work with the government on this but this needs to be considered now not in three years time.”
For more information on Help to Buy, read our adviser guide and earn 40 CPD minutes.
