The FPC provides an annual review each year and, as HTB2 ‘celebrates’ its second birthday, there might have been some concern from Government circles that Cable’s suggestion was close to the truth. Fortunately, that appears not to be the case as the FPC has given HTB2 a clean bill of health and, in a very real sense, has also provided clarity and confidence with regards to the use of guarantees across the board, whether they be within the Scheme itself or for those growing band of lenders utilising private mortgage insurance.
Going back to the review, the headlines are all positive. Essentially, the FPC say HTB2 is posing no risk to financial stability in the UK; use of it is in line with their expectations with HTB loans accounting for less than 6% of all house purchase loans; HTB lending is only making up a small proportion of lenders’ loan books; underwriting remains prudent for all HTB loans but particularly for high LTV – 90% or over; loan-to-income levels for high LTV loans have remained broadly flat; and finally affordability measures are also described as remaining prudent.
In essence this is a ‘thumbs up’ for HTB2 and one which means the FPC is keeping the fee structure as is for what will be the final year of the scheme. Somewhat ironically I suppose this positive review leads into a period where lenders are likely to be moving away from participation in the scheme itself, given that it is due to finish at the end of 2016. Indeed, we have already begun to see this with a number of mainstream lenders launching high LTV product ranges which are not part of HTB2.
There had been some concerns that lenders operating in the HTB2 space might pull back further from high LTV lending when their participation in the scheme ends. Thankfully, the signals from those such as Santander and Nationwide are that they will continue to ‘play’ actively in that part of the market – of particularly good news for first-time buyers – and we would anticipate other, mainstream operators who have been part of HTB2 will follow in their footsteps.
If there is any doubt within those lenders about continued high LTV activity then perhaps this can be allayed by utilising the private mortgage insurance sector? Given the FPC’s review and the success of the Scheme one might argue there is an ongoing and compelling argument to be made for lenders who continue to operate in the high LTV space to ensure they do so with a private mortgage insurance guarantee.
Already we have large number of building societies, for example, operating in this space and using mortgage insurance to do so, and given the shortage of loans pre-HTB2, one doesn’t want to see a swift return to this situation. A smooth transition from HTB2 to the private sector, facilitated by the Government, would seem to be the best course of action for a successful Scheme which can continue to offer much hope to first-time buyers, albeit without the need for State backing.
