This engaging article of the Property Wire on September 30th, 2013 discusses the second part of government's Help to Buy scheme on which it will be launch three months early.
The
second phase of the UK government’s flag Help to Buy scheme is being
brought in three months early and banks will start offering taxpayer
subsidised mortgages on properties up to £600,000 from this week.
In a surprise announcement for some, Prime Minister David Cameron
announced at the weekend that he was bringing the scheme forward and
that state backed lenders, the Royal Bank of Scotland and Lloyds Banking
Group, have signed up to the scheme and are ready to go.
Other lenders are expected to follow soon although it is understood
that actually money will not be available until January. The details are
expected to be made available later this week including fees. It was
also announced last week that the scheme will be monitored by the Bank
of England on an annual basis.
The announcement comes at a time
when property industry commentators have been raising concerns that
government intervention in the housing market to boost sales could
create a property price bubble but last week the Bank of England said
there are no signs of this happening, yet.
This second phase of
the scheme extends Help to Buy beyond the new housing market and also
allows buyers to get a loan on a home up to £600,000 with just a 5%
deposit. It is well acknowledged that first time buyers in particular
are struggling to find enough money for a deposit, especially in London
and the south east of England where prices are much higher than the rest
of the country and rising faster too.
This phase two of the Help
to Buy scheme will be available for £12 billion of guarantees on up to
£130 billion of mortgages and remain open for three years.
‘Despite
the economy recovering, we know many families are finding it tough to
get a mortgage deposit together. We are committed to helping as many
people as possible across Britain to get on with their lives, to buy
their first home, to move to a bigger house as their family grows,’ said
Ross McEwan, incoming chief executive of RBS.
The bank said it
would be offering a range of ‘competitive’ 95% mortgages to first and
next time buyers in the UK and that it aimed to help 25,500 first time
and next time buyers through the scheme.
Reaction has been mixed.
In particular there is concern about prices rising too quickly in some
regions as a result and also worries about the effect on the private
rental market which has been boosted by the lack of lending to buyers.
According
to Camilla Dell, managing Partner of Black Brick, the Help to Buy
scheme is good news for first time buyers who, for many years, have been
unable to get on the property ladder and have been forced to rent.
But
she questions its overall positive effects on a property market that
has been steadily improving. ‘The consequences of the government’s
intervention into the market in this way may not be for the better.
Undoubtedly, the market sub £600,000 is likely to rise and get quite
competitive, particularly as the second phase isn't limited to just new
build,’ she explained.
‘The knock on effect is also likely to
cause changes in the lower end of the rental market. Help to Buy will
take hundreds of tenants out of the market and could cause rents for
properties valued up to £600,000 to fall. In central London, this is
likely to be seen on one bed and studio flats.
‘So, wwhether it
will be for the best remains to be seen overall, I'm not sure it will
be. The problem with Help to Buy is it’s a bit like credit cards as
people take on debt they can't afford, which is dangerous. In my
opinion, the government should really be addressing why housing is so
expensive in the first place, rather than finding a way to fund it. We
need to build more homes so that supply eventually meets with demand,
and that's where government’s focus should lie,’ she added.
Property
expert Henry Pryor is not convinced, saying that the first phase of
Help to Buy made sense for people looking to buy a new build home. He
pointed out that in general this second phase, which was due to be
launched in January 2014, was felt to be flawed and risked bucking the
market and critics have included past and current Governors of the Bank
of England, the treasury Select Committee, the International Monetary
Fund, lenders, builders, all the main opposition parties and even the
Business Secretary Vince Cable.
‘Everyone felt that this was a
step to far and risked creating a price bubble. What's odd is to try to
solve a supply problem by subsidising demand. Give 10 people trying to
buy six houses more money and guess what they do with it? Ironically the
Tory party aim of helping those who can't afford to get into the
housing ladder will result in making those very homes they want to buy
more expensive. It's nuts,’ he said.
However, others are more
positive about bringing the scheme forward. ‘Allowing buyers of second
hand homes earlier access to Help to Buy will stop the autumn market
stultifying while everybody waits for the New Year. It will therefore
assist in avoiding the artificially pent up demand from the autumn
overflowing into January,’ said Jonathan Hopper, managing director of
property finders.
‘It is good news that the government owned banks
have agreed to take part in the scheme so quickly, however we urge the
other mortgage lenders to get on board quickly and offer the scheme to
their borrowers,’ he added.
Brendan Cox, managing director of
Waterfords estate agent, believes that it is possible that the move
could fuel a housing boom as people who were previously unable to buy
will be unleashed to the housing market and this is bound to send a
ripple effect up the chain.
But he also pointed out that the Bank
of England and the government have said they are going to keep a very
close eye on this to make sure a boom doesn't happen although they
haven't actually said what measures they intend to put in place to
prevent it.
‘Stock levels remain low and this new dimension will
surely only further increase prices as the supply and demand factor
pushes prices upwards,’ he said, adding that it is also going to have an
effect on the rental market.
‘We could see a levelling out of
rental prices as tenants take this opportunity to buy their first home
but we mustn't forget even raising 5% will be beyond a lot of tenants
reach,’ he added.
‘Cutting the wait short for 95% government
backed mortgages will clearly give renewed hope to frustrated would be
home owners across the country, according to Peter Williams, Executive
Director of the Intermediary Mortgage Lenders Association (IMLA).
‘The
equity loan aspect of Help to Buy has been a resounding success and
there is no doubt that the appetite exists for the new mortgage
guarantee to fly off the shelves. That said, higher loan to value (LTV)
mortgages have already become more readily available as funding has
improved and competition intensified. In that respect the government
needed to get the scheme out earlier to have any real impact. The first
time buyer market in the UK has been driven off 95% LTV loans for many
years so fully restoring that market will be helpful and should boost
transactions,’ he explained.
‘The announcement’s timing during
conference season does make Help to Buy’s political purpose even more
explicit in terms of boosting party morale and electoral prospects.
While the Bank of England is preaching caution and careful monitoring of
house price inflation, bringing the mortgage guarantee forward by three
months opens the government up to accusations of pushing too far, too
fast. But with central controls in place to deal with any downsides of
the scheme, it should still be possible to manage this intervention
successfully,’ he pointed out.
‘Clearly the state supported lenders are the first to open for
business and accept applications for the scheme. But with final terms
and conditions still to emerge, not to mention costs, most lenders will
need time to reflect before deciding what their offer will be. It is
vital we guard against the assumption that all lenders will be able to
accept Help to Buy applications from day one, which may result in even
greater frustration from staff and customers across the country.
‘It
is also likely that we will see interventions in the scheme over its
planned three year lifespan, so lenders and borrowers also face the
uncertainty of regular changes in terms and conditions. IMLA members’
concerns about Help to Buy’s possible effects on house prices have been
partly eased by the revised controls regime, but considerable
uncertainties remain: not least because the housing market is now firmly
in the party political headlights,’ he added.
It will cause ‘a wave of excitement’, according to Brian Murphy, head
of lending at the Mortgage Advice Bureau. ‘The Help to Buy mortgage
guarantee has a clear purpose and will answer a real need by giving
options to first time buyers and those home owners who have seen their
equity eroded and been unable to make their next move. It is undoubtedly
a welcome initiative from a consumer point of view,’ he said.
‘A
key ambition over the next three years must be to re-establish 95%
lending as part of a balanced and normally functioning market. With the
government behind it, the market looks set for continued growth which
will hopefully prompt a greater level of overall transactions and more
willingness from lenders to get behind those buyers with limited
deposits,’ explained Murphy.
‘Clearly there will be a flurry of
activity as lenders bring their implementation and delivery plans
forwards, once the final details of the scheme are confirmed. The
important thing is for consumers to get clear, consistent messages about
the mortgage guarantees, how they work and where they are available.
Rather than becoming an overnight sensation, it would be in everyone’s
best interests if the scheme is managed in a steady and sustainable
way,’ he added.
Ben Thompson, managing director of the Legal &
General Mortgage Club, reckons that the government didn’t want to leave
it too late, but added that remains unclear exactly what the scheme
details and specifics are for lenders, and in that regard precisely who
will participate other than RBS and Lloyds Banking Group.
‘It is
clear that there are potential first time buyers and movers who are
having to spend significant time saving for a substantial deposit and
this has to be fixed in order that families can live in suitable
accommodation and enjoy home ownership in the same way that previous
generations have. Bringing the scheme forward potentially enables some
to buy or move a few months earlier than originally planned, in some
regions saving a little more money, as house prices in some parts are
climbing. It's therefore important not to leave this too late,’ he
added.
Article Source: http://www.propertywire.com/news/europe/uk-help-buy-scheme-201309308291.html
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