The extension of the previous FirstBuy shared equity scheme is now open to people moving house as well as to first-time buyers. This is a shared appreciation mortgage where the government will loan up to 20 per cent of the value of a new-build home up to a property value of £600,000. There will no longer be the maximum income cap that was set at £60,000.
The big thing for borrowers participating in this scheme will be to understand that they are in fact giving away part of their property. Many buyers may not realise the full extent of this and you can imagine the situation a few years down the line when the homeowners come to sell and suddenly realise that they have to pay 20 per cent of the property’s worth, plus any uplift in value, back to the government or the house builder. Another caveat is that new-build houses tend to be priced higher for those buying them under schemes such as this than they are for those with separate financing – who are more likely to get a discount off the house price. In a flat market, this can make it very difficult for borrowers to move in a few years’ time when they need to sell and buy a bigger house.
Financial advisers will be crucial in explaining the intricacies of the scheme to their clients, but there we hit another crux that will affect the scheme’s success: how many financial advisers will even be able to advise on Help to Buy?
The number of lenders involved in the NewBuy scheme is even more limited with only six currently taking part. What the Help to Buy initiative may do is encourage other lenders to go back to the drawing board and also look to enter this market.
More promising is the new mortgage indemnity guarantee scheme – the government’s guarantee on up to 20 per cent of a property’s value. However, the Treasury website says that this is “subject to final scheme design” – we wait with bated breath for the final details and how much this may change before the implementation date of 1 January next year.
Crucial to the MIG scheme’s success is whether lenders will get capital relief, as capital adequacy rules currently dictate that lenders have to hold approximately eight times more capital 90 per cent loan-to-value loans than they do for loans that are 60 per cent LTV and under. If capital adequacy stays the same then the mortgage guarantee scheme may well be of limited success; if capital relief comes into play then that could be a real game changer.
Other announcements that will affect the housing market are the suggested extension to the Funding for Lending scheme and changes to the Right to Buy scheme, which has been made a little more lenient. Under Right to Buy, tenants who want to buy their council house property now only have to be in the property for three years instead of five, plus the application process is to be simplified and there has been an increase in the discount available on the purchase price: it had originally been capped at £75,000 below market value but has now been raised to £100,000. The money gained by the council will then be put into paying down housing debt, so some of it will be held onto and used for “one-to-one replacement of houses” in order to help maintain housing stock.
It was a very Conservative Budget that seemed to continue the Thatcher commitment to home ownership. I do not think that it will have a significant impact in 2013 although it will go some way to helping hit the Council of Mortgage Lenders forecast of £156bn of lending this year.
The big influencer on the state of the lending market will be any capital relief on the mortgage guarantee scheme – that is the crucial bit that has been left out until now.
David Copland is director of mortgage services at LSL Financial Services
Key points
– The extension of the previous FirstBuy shared equity scheme is now open to people moving house as well as to first-time buyers.
– New-build houses tend to be priced higher for those buying them under schemes such as this than they are for those with separate financing
– Financial advisers will be crucial in explaining the intricacies of the scheme to their clients, but how many financial advisers will even be able to advise on Help to Buy?
