Following on from the equity loan first phase that launched in April 2013, the second part of Help to Buy is a mortgage guarantee scheme that covers just shy of 15 per cent of lender losses in the event of borrower default.
The scheme is designed to improve conditions for all prospective buyers to purchase a pre-owned or new build property worth up to £600,000 with as little as a 5 per cent deposit of the purchase price.
Despite protestations from some - including the Treasury Select Committee - warning of an impending housing market bubble caused by rowing demand-supply imbalance, applications for the scheme were actually brought forward by prime minister David Cameron to October 2013.
This month, we saw a wave of launches as well as a number of data releases pointing to a predicted rise in house prices, though obviously the degree to which any part of the Help to Buy programme is behind this is open to debate.
I am not convinced Help to Buy rates offered are worth it unless the applicant really has nowhere else to go - it seems like a premium for desperationDo we need help to build?
In the first week of January, statistics published jointly by the Prime Minister’s Office, the department for community and local government revealed the number of people who have put in offers for homes under the Help to Buy scheme trebled to 6,000 in just two months.
The figures showed 4,000 more people have applied for Help to Buy mortgages since November, when initial figures indicated an uptake of 2,000 in the first month of the scheme.
Elsewhere, Nationwide data revealed that house prices had increased in all UK regions. While this is good news for those already on the housing ladder, Nationwide pointed out that part of the reason for acceleration in house price growth is that the supply side of the market has not kept pace with the upturn in demand.
For example, in Q3 2013 the number of housing transactions in England was around 25 per cent below pre-crisis levels, while the number of new homes built was around 45 per cent lower.
The Royal Institution of Chartered Surveyors also warned that property supply must increase or property prices will become “unsustainable”, as Rics data revealed the number of homes sold per chartered surveyor reached its highest point since March 2008.
However, Nationwide’s housing economist Martin Ellis said that continuing pressures on household finances, as earnings continue failing to keep pace with consumer price inflation, will constrain demand.
This will potentially encourage and enable more owners to put their property on the market for sale over the coming year, therefore boosting supply, he said.
Is scheme helping to buy?
Following launches in December from the likes of Virgin Money, high street banks Lloyds and Santander, as well as Royal Bank of Scotland subsidiary NatWest Intermediary Solutions, unveiled their Help to Buy 2 ranges.
NatWest’s adviser sales unit revealed it will offer the same mortgages that have been offered direct since late last year: a 4.99 per cent two-year fixed rate and a 5.49 per cent five-year fixed rate available at 95 per cent loan-to-value (LTV) with no product fee.
Santander will also offer a 4.99 per cent two-year fixed rate and a 5.49 per cent five-year fixed rate, as well as a 4.99 per cent variable rate tracker deal, all with no booking fees on properties up to the value of £600,000.
Launched on 3 January, Lloyds rates, available up to a maximum loan to value of 95 per cent, include a two-year fixed rate of 5.19 per cent - increasing to 5.39 per cent if you’re not already a Lloyds banking customer - with a £995 fee.
Many advisers have confessed to being underwhelmed by the rates available. Jane King, adviser for Ash Ridge Private Finance, London, said the scheme is “only worth considering if you really only have that 5 per cent deposit”.
She added: “The rates between the mortgages on offer outside of Help to Buy that require a 10 per cent deposit or more can be between 1-2 per cent lower than those available on Help to Buy mortgages and still not every applicant is getting a mortgage with Help to Buy.
“I am not convinced the rates offered for the privilege is worth it unless the applicant really has nowhere else to go. It seems like a premium for desperation.”
Data protection breaches
Away from Help to Buy, last week FTAdviser sister publication Financial Adviser revealed that some leading estate agents are holding prospective homeowners hostage by demanding proof of deposits held and account details in a potential breach of the Data Protection Act.
Interestingly, FTAdviser commentators did not seem surprised by this with IFA John Bloomfield writing: “This is nothing new it has gone on as long as I have been in the industry”.
Another anonymous commentator wrote: “This has been going on since time immemorial and I guess is rearing it’s head again as volumes of property sales increase.”
Financial Adviser has now launched a campaign for tighter regulations for estate agents and better consumer protection. It will be interesting to see how regulation could be improved as The Estate Agents Act 1979 is supposed to regulate estate agent’s work to ensure that they act in the best interests of their clients.
Clearly this is failing somewhere along the line.
Plummeting mortgage rates
Also last week, Mortgage Brain data revealed that mortgage rates have tumbled by 32 per cent in the last 12 months, with latest figures showing that the rate for a 60 per cent loan-to-value, two-year tracker has dropped from 2.49 per cent to 1.69 per cent.
The Lloyds’ banking stable were proactive this month, with both Halifax and Lloyds reducing rates. Lloyds reduced rates across its range of two-year mortgages, with cuts of up to 0.2 per cent. The following day, Halifax followed suit, cutting rates by the same amount.
Nationwide also cut rates on its 95 per cent loan to value products, by to 0.3 per cent. It also launched two new two-year fixed rates at 95 per cent LTV, with rates starting from 4.99 per cent for new customers and 4.89 per cent for Nationwide’s existing mortgage customers.
January’s top mortgage picks
In spite of the criticism from some quarters, of the many mortgage deals launched this month David Hollingworth, associate director for communications at London & Country Mortgages, highlighted the Help to Buy 2 product launches this month as being of particular interest.
He said: “Santander launched a keen 2-year fix at 4.99 per cent to 95 per cent LTV with no fee. This also carries some attractive incentives of a free valuation and a £250 cashback to give it an added edge.
“Woolwich took a slightly different tack leaving the 2-year market alone and instead launching a 3- year fixed rate at 5.35 per cent to 95 per cent LTV with no fee.
“The addition of these lenders to the existing stable of Help to Buy lenders means that there is a much greater range of options for those with a small deposit than there was just six months ago. With significant players now participating, it should also encourage other lenders to launch whether backed by the government guarantee or not.”
