While the industry has given a warm welcome to the government-backed initiative Help to Buy, which opens for applications today having been brought forward by the government, there are concerns that property supply will not be able to meet demand.
The Treasury officially launched the £12bn initiative today (8 October), revealing further details as to how much the government would charge lenders for the mortgage guarantees as well as who is participating.
Several lenders, including Halifax, Bank of Scotland, Natwest, Aldermore Bank and Virgin Money, have confirmed they will be participating in the scheme, meaning there is likely to be an increase in the availability of high loan-to-value mortgages.
The Treasury Select Committee issued a warning in a report also published today that the scheme may not give the necessary boost to supply and so could simply inflate a pricing bubble that could ultimately pose threat to financial stability.
The first part of Help to Buy, which launched in April of this year, saw borrowers offered equity loans from the government for equity loans on new build houses worth up to £600,000. However, the second phase of the scheme, which will see the government guarantee up to 15 per cent of high loan-to-value loans, is available for all borrowers on any house up to the same value.
The Council of Mortgage Lenders gave backing to the principle of the scheme as it should help to give lenders confidence to extent loans to “creditworthy borrowers with low deposits”, but echoed that “crucial” to the scheme’s success is ensuring supply of housing is also increased.
Paul Smee, CML director general, said: “As the mortgage market continues to unfreeze, assisted by Help to Buy and Funding for Lending, an increase in the supply of new housing will be a crucial factor in success. The homes need to be there for people to buy, as well as the finance to buy them.
CML added that borrowers can expect their ability to afford repayments on the mortgage to be assessed as rigorously as an application for any other mortgage. It highlighted there is “no practical difference” between a mortgage that is supported by a Help to Buy guarantee and one that is not.
“The key benefit of the scheme is in providing additional security to lenders, and so making it more likely that they will be willing to make loans to creditworthy borrowers with modest deposits.”
Stephen Smith, director for housing and external affairs for Legal & General Network, agreed that there is a concern over supply.
He said: “We simply don’t have enough houses to meet demand. This lack of homes is causing house prices to rise which will be detrimental to affordability over the long-term. Housing supply now needs to be top of the political agenda if we are to get the market back to a more stable and sustainable norm.
Mr Smith added that important questions remain to be answered around pricing, saying: “The likelihood is that mortgage rates will not start at the cheapest end of the spectrum and so those borrowers seeking to take advantage of the scheme should carefully plan to ensure they can afford it.”
Sue Foxley, head of research at estate agency Cluttons, labelled the Treasury’s move “bold”, but warned that the prime minister “needs to be careful to not exacerbate the housing challenge faced by aspiring home owners”.
