For those unaware, HTB London is pretty much HTB1 reimagined but upping the ante, in that new-build properties up to £600k come within the scheme’s parameters. Also, borrowers can get a loan worth up to 40% of the cost of the property, whereas in other parts of the country it’s between 10% and 20%. Effectively, it’s another string to the Help to Buy bow helping borrowers who only have a 5% deposit to try to get on the property ladder in the Capital – which as we all know for those on, what we might describe as, average incomes can be incredibly difficult.
Of course, HTB London is not just a scheme available for first-time buyers but homemovers as well, however as we’ve seen with the statistics coming out of HTB in general, it has tended to be more first-timer focused. Overall, the recognition of London as a separate entity when it comes to the UK housing market is to be welcomed. I think we are all fully aware of just how London’s market differs to most others around the country and treating it as a standalone area is definitely the right way to approach it.
Whether, as some commentators have already suggested, it is unlikely to make significant strides in terms of getting more homes built and getting them sold at ‘affordable’ levels is perhaps a question that will have to be answered. Indeed, we shall have to wait and see on that regard, but certainly the income level requirements for average London homes are pretty considerable, when you accept that £500k-plus tends to be the average price. Just the deposit level required – even at 5% - is high and annual income is going to have to be in excess of £60k-plus to qualify on top of this.
The other major issue of course is that as HTB London is launched we have the winding down of HTB2 which will finish at the end of this year. It’s fair to say that the mortgage guarantee element of HTB has certainly ‘done its bit’ in terms of acting as a catalyst, particularly for the bigger banks, in increasing their high LTV lending. What has also been of note is that in recent months, banks who are members of the scheme have been issuing high LTV products outside of HTB. This is likely to continue and there are even rumours that some lenders will choose to exit HTB2 early rather than continuing right up until the end of the year.
This being the case, we move to sounding like ‘A Question of Sport’ round in asking the question ‘What happens next?’ Our recent research showed that high LTV lending in the first-time buyer space has already started to drop off, and therefore the next moves of those big banks and lenders becomes even more important, especially if housing policy remains focused on maintaining an open lending market which allows first-timers to keep purchasing homes.
We can all praise the introduction of HTB2 and how it has, without doubt, been a success, but we need to seriously consider the post-HTB2 environment. It is critically important for the future of the high LTV market, and first time buyers, that both Government and regulatory stakeholders assess the implications of withdrawing HTB2 and put in place measures that ensure this critical segment lives on after the scheme ends.
When and how this is achieved is up for debate, but at its heart the solution must provide a ‘carrot’ and ‘stick’ for lenders - on the one hand, the use of private mortgage insurance should be encouraged to continue the prudent approach to high LTV lending now enshrined in the UK market, but in return, the use of mortgage insurance as a valid credit-risk mitigant should be recognised by the regulators with appropriate capital relief provided to lenders where this protection complies with the CRR. It’s a solution that is absolutely necessary if we are to continue to support first-time buyers and provide them with the finance opportunities to make that move on, and up, the ladder.
