Consumers are using the scheme to its full potential: the average loan-to-value for the mortgage guarantee scheme in August was 94%, significantly higher than the market average of 72% and just 1% below the scheme’s maximum LTV of 95%. As a result, the average deposit for a Help to Buy 2 application in August was just £9,229: 87% lower than the market average of £69,235.
The mortgage guarantee scheme is being used for affordable rather than high-end properties. The average HTB2 property price in August was £159,527: 31% lower than the market average (£231,306).
The typical primary income of a HTB2 applicant was £32,745 in August: 19% lower than the market average of £40,588 but still 24% higher than the UK average wage (£26,500).
Brian Murphy, Head of Lending at Mortgage Advice Bureau (MAB), said:
“The Bank of England recently gave the mortgage guarantee scheme its confident backing, confirming that it currently poses no threat to the financial stability of the UK and has no correlation with rising house prices. As the scheme reaches its first birthday, it is important that we recognise and build upon the positive changes it has brought to the mortgage market.
“With average HTB2 deposits totalling less than £10,000 in August, the scheme has made home ownership possible for many first-time buyers who otherwise would not have been able to buy in an environment of rising rents and increased house prices. Crucially, it has also normalised higher loan-to-value lending, encouraging even those lenders who have not participated in the scheme to expand their 95% mortgage offering. This brings greater product choice to consumers and allows more affordable options to take centre stage.
“However, now is not the time to be complacent: affordability is very much still a concern for first-time buyers, and more can be done to ease the path to home ownership. With a renewed focus on responsible lending thanks to the Mortgage Market Review and Bank of England safeguards, there is an important role for high LTV lending in today’s market. More lenders need to put their weight behind 95% mortgages to ensure buyers with small deposits aren’t unnecessarily barred from the property market.”
Simon Crone, Vice President – Mortgage Insurance Europe for Genworth, commented:
“The Help to Buy mortgage guarantee scheme has made a solid start in restoring life to the high loan to value mortgage market. However, this type of mortgage activity still remains worryingly subdued and with lending barriers hardwired into the market, it is critical that a permanent solution is found to support responsible borrowers with small deposits.
“Maintaining prudent lending is vital to the safety of the financial system, but the possible introduction of LTV caps spells danger for creditworthy borrowers who may be blocked from buying property despite being able to afford a 95% loan. A permanent system of mortgage insurance would provide a more flexible macro prudential tool that can respond to market dynamics and introduce restraint if there is any sign of overheating, without thwarting first time buyers’ ambitions.
“High LTV lending is crucial to supporting both homeownership and house building; without an exit strategy for Help to Buy, we risk losing any gains made by the scheme. A long-term role for private insurance has worked effectively in overseas markets such as Canada to manage risk and would remove the current reliance on UK taxpayers’ funds. This needs addressing long before 2017 to avoid upsetting the balance and giving lenders a reason to abandon high LTV loans when Help to Buy is eventually wound down.”
