But the latest Genworth/Moneyfacts Mortgage LTV Tracker also reveals it played an important role in encouraging first time buyers back to the market: delivering 16% of the year-on-year rise in first time buyer loans and helping to protect high loan to value products from falling numbers and rising interest rates.
The 5,843 HTB2 loans to first time buyers made up just 3.9% of the total 148,200 first time buyer loans between October 2013 and March 2014 (source: CML). The 342 HTB2 loans to first time buyers in London also represented just 1.4% of the 25,300 total to first time buyers in the capital during this period.
Yet first time buyer numbers during the first six months of HTB2 were 35,700 higher than the equivalent period a year earlier (112,500 in October 2012 to March 2013) as the mortgage market continued its recovery.
Those using HTB2 represent 16% of this 35,700 rise: meaning that one in six of these extra first time buyers was able to buy with a 5-15% deposit via HTB2 despite average deposits for the whole market remaining high in historic terms.
Simon Crone, Genworth Vice President – Mortgage Insurance Europe, says:
“These figures refute the notion that Help to Buy has flooded the market and show it delivering what it set out to achieve. What the scheme is doing, as a fraction of total first time buyer activity, is offering hope to those who struggle to raise the average deposit but can still afford repayments and pass affordability checks.
“Responsible lending at higher LTVs has a vital role to play, especially when it is getting tougher for people on good wages to save a deposit as prices rise. Builders will only build if people can buy, which is why prudent high LTV lending is an essential part of the picture.
“Without Help to Buy, we would return to a closed-off market that is the sole preserve of the privileged few. Until there is a long term plan to cement the future of high LTV loans, this is a real concern and demands a rational appraisal from government and the Bank of England.”
The Help to Buy effect meant the availability of mortgage products at 90% and 95% LTV during May withstood the first impact of the Mortgage Market Review.
Product numbers fell in all but one LTV band during May following MMR’s ‘go-live’ date on 26 April. The 90% LTV range was the only one to record any growth with three new products pushing the total to 375.
Six products were withdrawn from the 95% LTV category, but this fall was surpassed by far greater losses below 90% LTV.
The product range at 95% LTV has grown the most year-on-year thanks to the galvanising effect of Help to Buy 2. From a low base, it has gained almost twice as many products as any other category and grown at 15 times the rate of the next best performing range (90% LTV).
Total products in the segments underpinned by Help to Buy – 85%, 90% and 95% LTV – have grown by 147 (16%) in the last year to 1,041. Almost two in every three of these new products (90 – 61%) offer a maximum LTV of 95%.
Simon Crone says:
“The ability to get a mortgage with a 5% deposit makes a world of difference to buyers without the financial muscle that comes with parental support, an inheritance windfall or disproportionate sacrifice over years of scrimping and saving.
“Help to Buy 2 has reinvigorated high LTV lending and helped product numbers to stand up in the face of the new mortgage rules. But withdrawing the scheme would have far graver consequences for first time buyers. Without a clear long-term strategy and a sustainable plan to support this part of the market, we risk seeing lenders turn their backs again when government support expires.”
95% LTV mortgages spared the worst of rising interest rates
Product pricing at 95% LTV has escaped the full effect of rising interest rates so far in 2014. The average two year fixed rate at 75% LTV has risen by 16 basis points since January, compared with 12bps at 90% LTV and just 9bps at 95% LTV.
Among five year fixed rate products, the average 75% LTV rate has risen by 35bps, compared with just 11bps at 95% LTV.
Simon Crone added:
“Competition in the high LTV market has limited price rises for 95% LTV products since the start of the year. While any change in the Bank of England base rate has implications for existing as well as new mortgage holders, the new MMR rules mean borrowers are only being accepted if they can cope with higher rates than we see today. Lenders involved in Help to Buy have been MMR-compliant from the start and taking a careful approach.
“Lenders using private mortgage guarantees offer some of the most competitive rates on the market. Shifting the risk of the government scheme to the private sector would keep this vital market alive and move us one step closer to a permanent fix to a long term problem.
“It would also help to improve on the ‘off the peg’ government guarantee and offer more flexibility to lenders who each have their own stance on high LTV lending, as Lloyds’ product changes showed recently.”
