Sesame Bankhall Group has called on lenders on its mortgages panel to increase loan-to-values on new build mortgages to handle a potential shortfall when the government’s Help to Buy scheme ends.
Research from Sesame Network and PMS Mortgage Club found only ten of the 100 lenders analysed offered 95 per cent LTV mortgages on new build houses which, according to the broker panels, meant “progress still needs to be made”.
Through the government’s Help to Buy equity loan, buyers can borrow 20 per cent of the cost of a new build property from the government with no loan fees for the first five years of owning the home.
This means buyers only need a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest. In London the government loan even amounts to 40 per cent.
The initiative has helped thousands of borrowers take their first steps onto the property ladder with more than 200,000 properties being bought via the scheme since it launched in April 2013, but it is coming to an end in 2023 after being limited to first-time buyers and subject to regional price caps from 2021.
Stacey Wood, national new build relationship manager for Sesame and PMS, said: “With only a small number of lenders operating above 85 per cent LTV on new build properties, this could mean customers have the challenge of raising a deposit of more than £44,000 post Help to Buy.
“The solution therefore has to be more lenders increasing their LTVs on new build properties, which the industry needs to start planning for sooner rather than later.”
Data out this week (September 10) showed the share of mortgages taken out with an LTV of more than 90 per cent spiked in the past quarter, reaching the same level as in 2008 just after the financial crash.
According to the Bank of England’s Mortgage Lenders and Administrators Statistics one in 20 (5.5 per cent) mortgages taken out in the three months to June had an LTV that exceeded 90 per cent, up from the 4.5 per cent measured in the previous quarter.
Earlier this year modular home builder, Project Etopia, warned the housing market had become too reliant on Help to Buy when its research showed the scheme had funded up to 97 per cent of new build sales in some regions.
Ms Wood noted the market had seen some improvement from lenders on higher LTVs but stressed much of this was from specialist lenders and smaller regional building societies. She argued there was still “much to be done” in terms of mobilising the broader market into action.
Some experts back the closure of the Help to Buy scheme however, after the scheme came under scrutiny when a National Audit Office report stated it could leave buyers in negative equity and had left the government exposed to "significant market risk".
Concerns were also raised that consumers could face a crunch in their finances as the first wave of government loan fees kicks in.
PMS and Sesame have also called on lenders to embrace modern methods of construction — such as concrete solutions which reduce construction time and promote sustainable building — in order to help the UK meet its ambitious house building target.
Jane Benjamin, director of mortgages at Sesame and PMS, said: “More lenders embracing MMC is another part of the long-term solution.
“With the government continuing to fall short of its target of building 300,000 homes a year, MMC could enable new properties to be constructed quickly and efficiently.”
In June the Public Accounts select committee said the government had “wasted a once-in-a-generation opportunity" to alleviate the nation’s housing crisis after it was on track to miss housing targets by a “wide margin”.
Ms Benjamin thought progress was being made to incorporate MMC into mainstream lending but said more innovation was needed to meet the needs of future customers.
Earlier this year, PMS and Sesame launched a broker help desk to support advisers working in the new build sector, offering guidance and education support to keep advisers updated on developments in the market.
imogen.tew@ft.com
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