Lending frenzy may have a sting in the tail

Tony Hazell

Tony Hazell

The early launch of Help to Buy phase two has already produced two outcomes worth noting. Lenders remain nervous of high loan-to-value mortgages and some brokers are primed to create a lending frenzy.

The latter comes from the daft announcements of 24-hour opening to cope with demand. My view is that anyone who wants to apply for a mortgage at 4am should be tested for drink and drugs as a basic pre-requisite. It all brings back memories of Right To Buy with brokers in camper vans.

Equally interesting is the level of the loans on offer. Government underwriting has persuaded lenders to offer deals at least one percentage point lower than standard 95 per cent deals. But they are still considerably more expensive than those on offer to borrowers who have saved more.

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Halifax is offering a two-year fix at 5.19 per cent with a £995 fee for a Help to Buy 95 per cent loan. A normal borrower with a 20 per cent deposit will be offered 3.14 per cent for two years with the same fee. The difference is an extra £114 a month on a 25-year repayment mortgage or £2736 over two years.

The message: we will lend if you want us to, but we still see this as an extremely risky market.

And this is just for the first two years of a seven-year scheme. We have no idea what sort of interest rates will be offered in a couple of years’ time, especially if house prices fall and the lender is looking at a negative equity loan.

HSBC is planning to make borrowers acknowledge a repayment illustration showing what their increased monthly repayments will be when interest rates rise.

This all feels like a step back to 2007, only now it is the government ostensibly taking the risk with taxpayers’ money whereas then it was lenders taking the risk with what turned out to be taxpayers’ money.

The scheme could hurt potential buyers who have saved hard to build a decent deposit and will now find themselves competing against those with government-backed loans. And if, as some predict, prices fall then lenders, borrowers and taxpayers could all lose out as they share the pain on repossessed properties that are sold for a loss.

I’m all for youngsters getting on to the property ladder, but I hope that those who become involved in this scheme are fully aware of the risks they are taking.


Better way for consumers

How do I find a good financial adviser? It is one of the more common questions to crop up in my mailbag – and it is one of the most difficult to answer.

Often the request is triggered by a life event such as retirement or an inheritance: few people wake up one morning and decide they need a financial adviser in their life. I ask the question because Unbiased plans to revamp the consumer section of its website but this will not include any ability for consumers to rate an adviser.