There’s no doubting that, in the housing and mortgage market, 2015 was an ‘interventionist’ year with the new Conservative Government seemingly determined to tackle the housing supply shortage (which has been a problem for far too many years) whilst at the same time placing itself firmly in the corner of would-be home owners.
Last month’s Autumn Statement had measures designed to support this in spades, including funding for 400,000 new homes and extensions to the Help to Buy brand for both London and shared ownership. Added onto this, we recently had the launch of the Help to Buy ISA with the Government once again providing incentives to those first-time buyers who choose to save for their deposits via these products.
All in all it represents a sizeable amount of money that the State is offering in order to firstly get new homes built and then to help first-timers in particular to move into. In essence, the taxpayer is subsidising this support as the Government takes on a much broader responsibility in helping first-time buyers. While it will clearly play well with this demographic, one has to wonder how long this, and future, Governments will be willing and able to offer such support, and at one point the market will need to be weaned off this particular drip?
In a way of course, while we all talk about ‘affordable homes’ and the ability of the younger generation to purchase them, the Government is making a sizeable investment here, and is going to want to see its own return in the years to come. London Help to Buy and the shared equity element of the wider UK scheme offers interest-free loans for five years, alongside the deposit and the mortgage, after which time the borrower does have to begin paying interest. Plus, if they decide, for example, in London to sell their London Help to Buy property and have taken out a 40% loan, the Government will be entitled to 40% of that property’s value. There will therefore be a keen interest taken in what happens to house prices over that period, and the Government will clearly be hoping for increases to boost its coffers.
This of course is not small print when it comes to London Help to Buy or the shared equity element, and there will be many purchasers willing to sign up to this. And of course it is actively supporting the building of new homes and should be welcomed. However, what about those borrowers who do not wish to partner with the Government in such an overt way? Of course, there is Help to Buy 2, the mortgage guarantee element, which is due to finish at the end of 2016, and requires the traditional deposit levels and a willing lender in order to make the purchase happen.
The high LTV mortgage market has certainly been aided by HTB2 but what happens next? Those lenders, who are currently part of the scheme, are beginning to offer low-deposit loans outside it, and the building society continues to do more than its fair share, however if the capital requirements of the banks are raised next year, will that appetite still be there? Building societies utilise private insurance arrangements but, on the whole, other lenders (certainly those within HTB2) currently do not. Will we therefore be able to make the move from State to the private sector and have continued high levels of 90/95% mortgage products available?
At present the future is certainly not bleak and there appears to be firstly, much more confidence in the use of a guarantee to offer higher LTV products, and secondly, a willingness particularly from building societies to keep playing in this sector. Continued activity from the bigger lenders however will be required and, at present, the level of this remains unknown. As we motor into 2016 and see the end of HTB2 sharply in front of us, we will be working to secure a comfortable transition that develops the Government’s own support for first-timers and ensures the State doesn’t always have to pick up the tab in order to help them make that first purchase.
