Mortgage advisers need to educate themselves on all the alternatives to Help to Buy, a scheme which has been successful in large part due to its visibility, according to a new industry body.
In a whitepaper published by the Industry Panel for Financial Advice, a newly formed group of mortgage advisers working closely with Sesame Bankhall Group, outlined their proposed reforms to make it easier for first-time buyers to own a home.
Among these reforms was a call for more competition in the equity scheme space, which IPFA argued has been dominated by Help to Buy due to its “strong brand” being promoted by developers, lenders, intermediaries and the government making it “impossible to miss”.
With small marketing budgets, we need cross industry support to better promote…alternative ownership schemes and products.IPFAThe body suggested the creation of an industry-wide campaign to draw more attention to these alternatives, including advisers getting more clued up on them.
“Advice here is crucial. Mortgage advisers need to be well versed in all the alternative schemes available,” said IPFA.
“As more private schemes enter the market, confusion among borrowers will grow. They will need advice to navigate through the options available.”
Alternative schemes include the government’s 95 per cent mortgage guarantee - designed to help more buyers put down a 5 per deposit - as well as First Homes, which offers first-time buyers a 30 per cent discount on a property’s market value, and shared ownership which allows someone to buy as little as a 25 per cent share while a housing association owns the remaining 75 per cent share.
Over the past year, there has been a flurry of privately backed alternatives to Help to Buy schemes coming to the market offering equity solutions.
We also need to encourage more competition and innovation in the private sector for new schemes to materialise.IPFAFintech firms such as Proportunity, Generation Home and Even are beginning to crop up in brokers’ inboxes promising to help their younger clientele.
Working a lot like the government’s Help to Buy scheme, which is due to be wound down in October, startups like Proportunity promise to increase a home buyer’s budget for a deposit by up to £150,000, or 25 per cent.
“Alternative shared equity schemes, backed by private funds, should be promoted to the same extent as Help to Buy,” said IPFA.
“But with small marketing budgets, we need cross industry support to better promote, fund, support, facilitate and widen access to the existing range of alternative ownership schemes and products.
“We also need to encourage more competition and innovation in the private sector for new schemes to materialise in the post Help to Buy environment.”
The government’s Help to Buy scheme has lent more than £20bn since it began back in April 2013, but a House of Lords report published earlier this year found the scheme had pushed up house prices in England and failed to “provide good value for money” for the taxpayer.
Some brokers have also shared their concerns borrowers will not be able to pay off their Help to Buy loans against a backdrop of rising rates and a living cost crisis.
Other proposed reforms made by IPFA included:
- An increase in the number of homes being built through the government’s affordable housing schemes;
- New laws which would limit the proportion of shared ownership homes that can be ‘staircased’ up to 100 per cent ownership, to reduce the number which leave the scheme;
- Advisers should raise awareness of ‘intergenerational mortgage’ products, currently offered by a small handful of firms such as Aviva-backed broker Tembo;
- Financial Conduct Authority to address “issue of advice silos” making it difficult for one adviser to advise on both residential and equity release mortgages;
- More lenders to offer split term mortgage which allow a borrower to save for their deposit after they’ve moved into their first home;
- Explore the idea of ‘low-start’ mortgages which would combine capital and interest-only borrowing which would help buyers with affordability, reducing the portion on interest-only as the borrower’s earnings increase.
The founding members of IPFA include advisory firms Aberdein Considine, Acumen, CMME, EasyLife Alliance, Fairstone, Instant Mortgages, Mortgage Required, New Leaf and Private Finance.
The body has been set up, it said, to “shine a light” on the issues facing first-time buyers and propose solutions the industry, government and regulators can implement to solve them.
ruby.hinchliffe@ft.com
