Despite mortgage lenders and brokers crediting Help to Buy 2 – the mortgage guarantee – with the biggest impact so far of the government’s flagship scheme, there are also widespread expectations that this second part of the scheme will be curtailed ahead of schedule.
IMLA’s latest Intermediary Lending Outlook reveals a consensus that Help to Buy 2 has been the most critical factor in boosting access to 95% loan to value mortgages to date. More than three quarters of brokers (78%) and lenders (77%) see this part of the government scheme as a major driver in improving conditions for borrowers with 5% deposits.
Significant numbers also credit Help to Buy with a key role in boosting the appeal of new build homes through its equity loan offering: 69% of lenders and 51% of brokers support this view.
Overall, brokers judge Help to Buy to have been more influential in restoring confidence among builders than consumers. Half (50%) see it as a deciding factor in boosting the outlook for the construction industry, compared with 42% for consumers. In contrast, 45% cite a wider range of factors behind the return of consumer confidence.
Over-inflated house prices remain the number one threat to the success of Help to Buy according to brokers and lenders. IMLA’s recent report What is the new ‘normal’? demonstrates that mortgage lending volumes are far below historic levels in real terms, yet these new findings suggest the industry recognises the need to monitor house price growth over the duration of Help to Buy.
Unattractive mortgage product pricing is the concern which has grown the most since last summer, with 51% of brokers citing this as a threat compared with 36% in July 2013. A number of lenders have launched competitive mortgages at 95% outside Help to Buy, which helps to explain why an over-reliance on government support has become less of a worry overall.
Half of brokers (50%) and a similar proportion of lenders (46%) predict the mortgage guarantee scheme will be withdrawn early, despite its perceived impact so far. Even more (54% and 75%) expect that the scheme will be withdrawn early for remortgages, which are currently allowed under Help to Buy 2 for customers transferring their existing loan to a new lender.
Despite these predictions, all lenders (100%) and nine out of ten brokers (89%) see 95% LTV mortgages as an essential part of a healthy mortgage market. Such loans were an established part of the UK mortgage market before the downturn and Help to Buy 2 has helped to stimulate a recovery in the number of 95% LTV products available.
The Help to Buy equity loan scheme for new build homes is judged to have the biggest chance of being extended beyond its current end date of March 2016. Almost one in four lenders (23%) and one in five brokers (18%) expect to see this part of the scheme prolonged.
Peter Williams, Executive Director for IMLA, commented:
“These findings throw the spotlight on crucial policy decisions that must be thought through to safeguard the recovery in mortgage lending and house building. The overall Help to Buy scheme has delivered a much needed boost over the last twelve months and we would certainly be looking at a more subdued supply situation without it.
“In particular, Help to Buy 2 has helped to reopen the higher LTV market after the downturn. This has done much to transform the hopes of first time buyers who can afford a mortgage but struggle to save an initial deposit. There are few clearer drivers for more homes to be built than aspiring buyers returning to the market.
“The Help to Buy factor has been important in getting growth underway, restoring a sustainable market and moving us towards a position where consumers can access affordable loans without the need for government support. Whether or not the scheme runs its full course is less important than making sure we have a self-sustaining market in place going forward. The evidence suggests that we have an entrenched mortgage market recovery which can survive its withdrawal.
“However, situations change and the industry is facing a considerable uplift in regulatory controls over the next two years. It will be essential to track how those bed in and what their consequences are for specific market segments. Armed with that understanding we can then be much clearer as to how and when we might best phase out the government schemes.”
